Your assignment is to prepare and submit a paper on the only fair means of taxation is direct taxation.

Your assignment is to prepare and submit a paper on the only fair means of taxation is direct taxation. On the other hand, there has been a shift towards indirect taxation in many nations. Economist have shown that the argument of Barone(1912) etc might be true for a partial equilibrium setup with a unique individual but need not be valid under general equilibrium setup with heterogeneous individuals(Friedman,1953). The debate remains unsettled. In this context, this essay makes a critical evaluation on the argument that direct taxation is the only fair means of taxation while indirect taxation has no part to play in today’s society based on the UK tax system. The critical evaluation is done from the points of view of principles of good taxation system, four current taxes in UK and the necessity of raising taxes in UK. In the second section, the discussion is done based on the principles of good taxation system, in the third section, discussion is done based on four current taxes in UK and the fourth section does the discussion based on the necessity of raising taxes in UK. The fifth section concludes the essay.

The four canons of taxation developed by Smith (1776) which are still widely accepted are the low cost3 of collection relative to the yield called the canon of economy, the certainty of the timing and amount to be paid to the payer called the canon of certainty, the convenience of the means and timing of payment to the payer called the canon of convenience and the taxes to be levied based on the ability to pay called canon of equality. In addition to these, the other criteria added to these by modern economists include the efficiency of taxes4, the productivity of taxes5, elasticity6,simplicity7, diversity8, compatibility of taxes with foreign systems and automatic adjustability of taxes to changes in the rate of inflation (Joint Committee on taxation,1995. AICPA,2001. James and Nobes,2008). Thus based on all these criteria, taxes can be evaluated according to efficiency, incentive, equity, and macro considerations.

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