Abstract
The theory of taxation rests on the shoulders of economic theory of the market. When a tax is introduced, market prices of products and inputs change, shifting the allocation of inputs—labour and capital, for example—distorting their pre-tax ‘efficient’ allocations among various products. A second effect could be unequal distribution or incidence of tax burdens on those resources. A third effect comprises uncertain effects on the stabilisation of an economy, and on savings and investment that may, in turn, affect capital formation and economic growth. Tax design should, therefore, recognise principles that minimise such adverse ramifications. Fourth, revenue buoyancy or productivity of tax revenue is an important concern of tax administrations. Fifth, clarity of tax law determines the ease of taxpayer compliance. Sixth, simplicity of tax structure is important because complexity leads to challenges of interpretation. Seventh, structuring a tax administration such that tax law is applied transparently and impartially has emerged as a crucial principle. The fact that some principles may conflict with one another under selected circumstances has to be contended with. Finally, a question that is addressed is, once a reformed tax structure adhering to essential principles is introduced, how long is it likely to last.
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Notes
- 1.
See Tiley and Loutzenhiser (2012), p. 7.
- 2.
This textbook focuses on a full range of taxation aspects exclusively. When only tax policy aspects are considered with public expenditure considerations under one umbrella that field is usually referred to as public finance. A recent treatise by Tanzi (2020a) takes the public finance approach.
- 3.
See Browning and Browning (1994), Chap. 2, for an elaboration of the nature of public goods, and how a free-rider problem emerges when citizens do not pay for public services they consume, but cannot be excluded from consumption because of the composite nature of such goods. Buchanan and Flowers (1987), Chap. 4, describe them as collective goods and services or indivisible goods.
- 4.
See Tiley and Loutzenhiser (2012), op. cit., p. 10.
- 5.
Policies such as privatisation of public sector enterprises, reducing conspicuous expenditure in education such as subsiding higher education while primary education was being deprived, and many others were characteristically discouraged in International Monetary Fund (IMF) assisted economic reform programmes when these countries approached the Fund for loans to restructure their economies. Usually that reflected inefficiencies in the public sector that typified its condition at a moment when they usually approached the Fund.
- 6.
See Levi (1988).
- 7.
See Meade (1978).
- 8.
A seminal early treatise on the anatomy of distortions caused by taxation was by Harberger (1974).
- 9.
See Xu (1994).
- 10.
See Tanzi (1991).
- 11.
See Jones et al. (1993).
- 12.
- 13.
See Baker and Pistone (2015).
- 14.
See TARC (2014), First Report, Chap. V, “Dispute Management,” on litigation in particular.
- 15.
Tanzi (2020b) has elaborated on the matter of simplicity versus complexity in public finance as a whole.
- 16.
See World Bank (2016).
- 17.
Reviews based in the United Kingdom have revealed this unequal burden, for example by Shaw et al. (2010).
- 18.
See TARC (2015), Fourth Report.
- 19.
See Graetz (2008) and Rossotti (2005) for example. Graetz was Deputy Assistant Secretary and Assistant to the Secretary of the US Treasury (Finance Ministry) between 1990 and 1992. And Rossotti was IRS Commissioner or the top tax administration official of the United States between 1997 and 2002. Both have expressed considerable criticism of the US tax system from policy and administration perspectives, respectively.
- 20.
- 21.
An array of legal experts, economists and tax administrators has considered a list of related issues in Shome (2016).
- 22.
This manner of distinguishing uncertainty from risk explained here is not usually found in the literature where the terms have been commonly used interchangeably. For example, to quote Atkinson and Stiglitz (2015), ‘Uncertainty is a feature of any economy, and attitudes towards risk-taking are likely to play an important role in determining economic performance’ (p. 97) … ‘draws attention to the need to consider the kind of risky event that we have in mind—whether … it is uncertainty surrounding technology, due to cyclical variations, etc.’ (p. 99). Here risk and uncertainty appear to carry the same meaning.
- 23.
- 24.
See Shome (2013) where those groups were brought together for intrinsic dialogue and analysis.
- 25.
See Footnote 21.
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Shome, P. (2021). Principles of Taxation. In: Taxation History, Theory, Law and Administration. Springer Texts in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-030-68214-9_6
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