Evaluate the UK tax system in the context of Adam's Canon of Taxation Essay

Evaluate the UK tax system in the context of Adam's Canon of Taxation - Essay Example 2008). In UK today, there exist no published figures on this particular ‘gap’ but statistics from the Tax Justice Network (TJN) indicate that UK’s fifty largest companies have paid an average of 5.7 per cent less corporation tax than ‘expected rates’ from 2000 to 2004 (Wolfgang et al. 2008). This largely depends upon what is ‘expected’ and some of the assumptions made are questionable. For instance, in UK, TJN has associated this with excessive corporate tax allowances given to motivate investment in plant and machinery that in turn result into high levels of deferred taxation (Wolfgang et al. 2008). Today, capital allowances constitute examples of various express tax relief and incentives, which are regarded by most governments as desirable in the context of their economic policies. Recent report findings by the National Audit Office in UK identified that, around 220 of the largest UK 700 companies paid no tax at all in the years 2005 an d 2006, which led to concerns being widely highlighted in the media that there were high levels of corporate tax avoidance (Wolfgang et al. 2008). Therefore, this research paper will largely look at and make evaluation of the UK tax system in the context of Adam’s Canon of Taxation. Background to Adam’s Canon of Taxation Adam Smith is considered the father of modern economics and part of his contribution to the field of economics was presentation of four principles of a good taxation system known as Adam Smith’s Canons of Taxation (Smith and Cannan 1976; Smith and Sutherland 1998). The four principles are as follows: Canon of Equity, in the words of Adam Smith, â€Å"people of every state should pay their share in proportion to their individual abilities, which means that they should pay tax proportion to that income which they respectively get under the government security† (Jain, Kaur, Gupta and Gupta n.d, p.30). The basic assumption of this law is that , people are supposed to pay taxes according their capacity, while equity in this sense means people should demonstrate equality of sacrifice in paying tax. For instance, since the rich people’s marginal utility of money is less than that for the poor, rich people are supposed to pay more amounts in taxes than the poor people (Jain, Kaur, Gupta and Gupta n.d). Therefore the principle of justice is implicated in this doctrine (Nicholson 1928) and in the words of Adam Smith, â€Å"It will be more justified for the rich to contribute to the public expenditure not only what is proportionate to their income but more than that† (Jain and Khanna 2006, p.349). The second canon is that of certainty, where the postulation of this principle is that, there need to be a certainty regarding taxes (Das, 1993). For example, in Smith’s words â€Å"the tax which each individual is bound to pay ought to be certain, and not arbitrary and that time of payment, the manner of payment , the quantity to be paid ought to be clear and plain to the contributor and to every other person† (Jain, Kaur, Gupta and Gupta n.d, p.30). These assumptions show that, in any taxation system, individuals must know how much tax they are supposed to pa