Taxation is the act of laying a tax, a process or means by which sovereign, through it’s lawmaking body raises revenue to defray necessary expenses of government.
Theory and Basis of Taxation:
a. Power of taxation proceeds upon the theory that the existence of the government is a necessity, that it cannot continue without means to pay its expenses and that for this means it has a right to compel all it’s citizens and property within it’s limits to contribute.
b. The basis of reciprocal duties of protection and support between states and it’s inhabitants. The state collect taxes from the subjects of taxation in order that it may be able to perform the functions of government.
- Taxes are the lifeblood of government and their prompt and certain availability are imperious need.
- Imposition of tax even in the absence of constitutional grant.
- Right to select objects of taxation.
- No injunction to enjoin or stop tax collection.
Compensatory purposes of taxation:
- To reduce excessive inequalities of wealth.
- To maintain high level of employment.
- To control inflation.
Basic Principles of Sound Tax System:
Fiscal Adequacy – means that the sources of revenue should be sufficient to meet public demands of public expenditures.
Administrative Feasibility – means that the laws should be capable of convenient, just and effective administration.
Theoretical Justice – means that tax burden should be proportionate to the taxpayers ability to pay. ( ability to pay principle).
Scope of Taxation – CPUS – Comprehensive, Plenary, Unlimited and Supreme.
Essential Characteristics of Tax:
- Payable in money.
- Commonly required to be paid at regular intervals.
- Levied on persons and property within jurisdiction of the State.
- It is an enforced contribution.
- Levied in pursuant to legislative authority.
- Proportionate in character.
- Levied and collected for raising revenues.