Canon of Taxation of Adam Smith, Philosophical Revelation and a Short Comparative Discussion in the Context of Modern Taxation Structures

Abstract

The political economy holds a philosophy to govern with the idea to serve the nation from collecting revenue rather borrowing from economy internally or externally. Taxation is the main source of internal revenue collection of any nation which can be collected from indirect and direct taxation policy of any nation. Economic policy of a country decides which way it will collect revenue and serve the public. Import duty or customs duty, charges on certain luxury goods and services known as value added tax (VAT) or goods and services tax (GST) are indirect in nature and easy sources of collecting revenue which are the oldest form of taxation and direct sources of taxation can be income tax, capital gain tax and corporate income or profit tax, these type of taxes are new in the world and now comprises a major portion of whole revenue for a nation. Smith’s resolution on different principles of governance provided government’s political economic philosophy a legacy from the starting of industrial revolution era. Legitimacy of taxation by the governments has been backed by intellectual renaissance by Adam Smith. However, with the change in business process and technological advancement with the nature of economies modifications in these principles are present in the modern taxation arena. Modern day taxation structure consists of complex methods of revenue collection methods backed by philosophical evolution for the last two centuries in the field of political economy. Due to technological advancement and globalization the business pattern are changing rapidly then before and profit shifting from one place to another by the multinational corporations are generating cat and mouse race between the government tax regimes with money makers. Governments follow principles of taxation developed by philosophers like Adam Smith, David Ricardo and John Stuart Mill to impose taxes for collecting revenues with a view to create social justice and welfare. Ricardo and Mill were almost contemporary if we consider the development of principles of taxation. Both glorified their ideas how to tax and what not to tax through economic policies mentioning about the forms of taxation alongside providing classification which mostly still followed in the collection of revenue for government activities or expenditures. They provided ideas observing the effects of taxation on income, capitals and wealth’s, but now in this ever changing business world the most of the philosophy proposed by Ricardo and Mill still exists with few modifications in principles of taxation with the size and nature of economy and function of the governments.