NormativePrinciples of Taxation

NormativePrinciples of Taxation - DRAFT NORMATIVE...

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DRAFT NORMATIVE PRINCIPLES OF TAXATION ©F. Barry Gorman, PhD, CA, TEP 1. Overview 2. Normative Principles (a) Equity (i) Overview (ii) Horizontal and Vertical Equity (iii) Can a Tax System be Fair? Is Equity Attainable? (b) Efficiency (c) Effectiveness (d) Neutrality (e) Ability-to-Pay (i) Income (ii) Personal Expenditures on Consumer Goods and Services (iii) Personal Net Wealth Obtained Over Time (f) Simplicity (g) Flexibility (h) Certainty and Predictability (i) Taxpayer Awareness and Acceptance (j) Low Administrative and Compliance Costs (k) Integration (l) International and Inter-Provincial Harmonization (m) Non-Arbitrariness (n) Relief From Transitional Problems (o) Openness/Visibility (p) Transparency and Accountability (q) Stability 3. Integrity of the Tax System 4. Conclusion 1. Overview In addition to determining their rationale, the policy analysis of tax measures consists of (a) evaluating measures against the normative principles of taxation, and (b) identifying the logical economic, social, fiscal, administrative and/or political consequences of the measure. This note outlines a framework for this analysis. 1
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To fully comprehend specific sections of the Act one must understand the policy objective(s) sought by the legislation (discussed in a separate handout) and the normative principles of taxation (discussed in this handout). Tax measures are evaluated on the basis of attainment of their policy objectives and concurrence with the normative principles. A principle is a fundamental motivating force or doctrine upon which an activity is based. A normative theory of taxation rests on a number of such principles . However, unlike the relatively objective and immutable principles established in the physical sciences, those of the social sciences (of which taxation is a part) are more subjective and elusive. Whereas physical science principles are relatively permanent once discovered, and can be replicated in later experiments, those of the social sciences rarely exist exactly as defined in actual social systems . Hence there is difficulty achieving consensus as to the meaning, desirability or feasibility of taxation principles, and more importantly, the relative significance of a principle with respect to a given tax measure at a particular point in time. The best that can be said of a taxation principle is that any single tax measure or combination of measures moves a tax system towards or away from, for example, simplicity or equity. Because of the nature of the legislation and the political process in which it is enacted, the evaluation of tax measures from a policy perspective is inherently more challenging than the analysis of more tangible aspects of government policy . The analysis is fraught with elusive concepts such as equity and fairness, which are subjective in definition and generate considerable debate amongst commentators. Public policy must also fit into a framework broad enough to allow for such socio-economic goals as welfare,
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NormativePrinciples of Taxation - DRAFT NORMATIVE...

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