Principles of a Sound Tax System

Taxation is a process that very important in each and every country. Without taxes, a country would not be able to carry out its day to day operations. To further expedite a country’s progress, proper administration and management of the tax system is needed. There is proper administration if a country is able to follow the principles of a sound tax system.

Principles of a Sound Tax System

Fiscal Adequacy

This requires that sources of government funds must be sufficient to cover government cost. Taxes should increase in response to increase in government spending. In other words, the government should collect the right amount of taxes to be used in its day to day operations.

Theoretical Justice

This principle states that taxation should consider the taxpayer’s ability to pay.  Taxes should not be oppressive, unjust or confiscatory. As the old saying goes, you should not kill the hen that lays the golden egg. Using the progressive tax system is a way of following theoretical justice.

Administrative Feasibility

Tax laws should be capable of efficient and effective administration to encourage compliance. Easy for taxpayers to comply, avoids administrative bottlenecks and reducing compliance cost. Using the EFPS provided by the BIR is a way of further improving administrative feasibility.