Table of Contents
Single and Multiple Taxation:
There has been a controversy over the comparative advantages of a single tax and a multiple tax system. Let us, first, understand the meaning of a single tax. A single tax means only one kind of tax. It does not mean a tax only on one person, nor a tax on all only once. It implies a tax on something, that is, on one class of things or on one class of people. Such a tax is collected not only once but regularly every month, or every year, at intervals of shorter or longer duration.
It may also imply a tax on all classes of things or on all expenditures or on all incomes. But in all such cases, it is after all only one thing that is taxed. It may be on just expenditure or income or things in general. A single tax may be proportional, progressive, or regressive; or it may just be a fixed amount. A toll tax that is levied as a fixed sum on all men is a tax on personality. Each man has one personality and so he pays the same tax.
Advocates of Single Tax:
As early as in the 17th and 18th centuries some people advocated a single tax on expenses. Later on, in the 18th century, some people in England wanted a single tax on houses. The idea underlying these proposals is to have a simple uncomplicated tax system that would be able to tax all the people.
In the 19th century, many people on the continent of Europe made out a plea for a single tax on income. Everybody has income and so everybody would have to pay this tax. Likewise, there were economists in France who advocated a single stamp tax. There were some who wanted a single tax on capital. Those who have capital must pay the tax and those who have no capital, need not be taxed. For instance, income tax is not levied on people who have incomes below a certain minimum amount.
However, physiocrats, Henry George and Issac Sherman gave too much importance to the idea of a single tax. Physiocrats advocated a single tax on land. They believed that agriculture was the only productive industry and so it was only agricultural land that could pay the taxes. In this way, they justified a single tax on land.
Mr. Issac Sherman, who proposed a single tax on all real estate was a diffusionist. He wanted, everybody should pay taxes. He believes that all taxes are shifted and reshifted. He was of the view that all taxes are diffused and lie somewhat equitably on all. Thus, he advocated a single tax on land. Since it is simple and convenient to administer and convenient to pay.
Mr. Henry George was a physiocratic in his views. He advocated a single tax on land because he thought that such a tax would not be shifted. It would be paid only by the owners of the land. Thus, he wanted that only landlords should pay the taxes. Since, he believed in the theory that taxes can be paid out of the surplus and it is only in the case of land that, there is a real surplus. Hence, it is not worthwhile to levy a tax anywhere else.
Both, Mr. Henry George and Mr. Issac Sherman were correct in their own way. Granted the premises on which they base their argument, their theories may be regarded as correct. It is a correct view that taxes can be paid out of a surplus. However, they regarded that, there is surplus only in the case of land, while modern economists believed that surplus is also found in other places. Hence, modern economists do not seriously consider the proposals of a single tax. But, when they think of an abstract possibility of a single tax, they, in most cases, appear to have a preference for a single tax on income. Since every income contains an element of surplus, such a tax can be conceived for a tax that falls on surplus. Yet for so many reasons, nobody thinks today in terms of Single Taxation. To put it in the words of Prof. Dalton, “In general the weight of arguments is against a single tax.
Merits of a Single Tax:
It has already been stated that there is not much that can be said in support of a single tax. However, the greatest merit lies in its simplicity. Since there is only one tax, it simplifies the work of the Government. A multiple tax system complicates the work in every respect, in collecting revenue and its effect on production and distribution. Thus, in a single tax system, the levy assessment and collection of revenue would be greatly simplified and consequently, it would be much less costly, if all the taxes are replaced by just one tax.
Again, it is also said that it would not be bad if the tax is selected judiciously. For instance, the income tax is not a bad tax from the point of view of equity. It would not discriminate against any particular industry or work. However, there are many other arguments that go against the single tax system.
Demerits of a Single Tax:
From the point of view of revenue, the single tax has the greatest defect in that its yield may not be sufficient for the government. The financial needs of the Government are not fixed and sometimes, the need of the Government suddenly increases which cannot be met by the yield of a single tax. The yield of any single tax does not increase as rapidly as the yield from multiple systems of taxes. To get the most out of its taxing power, the government has to tap a number of sources of revenue. It cannot simply raise the rate of the tax and get more money. By doing so, the yield from the tax increases but it increases at a diminishing rate. Hence, modern economists prefer a multiple tax system rather than a single tax system. It is also said that sometimes the yield of a particular tax may shrink due to a variety of reasons. But, if there are a number of taxes, the yield of one may decrease and that of another might increase. Hence, the yield from a number of taxes is more dependable than that from a single tax.
The single tax system has also been opposed on the ground of equity. It is said that it cannot be imposed in proportion to the ability of the taxpayer. For instance, if a tax is imposed on houses, land, or any other such things, it is very difficult to make its burden on everybody in proportion to his ability. Here, it has been pointed out that, if the tax is on income, it can be made very equitable. But the income tax too is evaded especially by rich people and hence, tax may not achieve the objective of equitable distribution of income and ability to pay. Taxation for social and political reasons would also be out of the question.
Modern economists have laid great stress on the diversity of taxation. It implies that there should be all types of taxes, direct and indirect, so that every class of citizen may be called upon to contribute something towards the State’s revenue. Hence, a multiple tax system is generally preferable to a single tax system, but too great multiplicity is not desirable, as it may go against the canon of economy and productivity. If there are large number of taxes each one of them may yield only a small amount of revenue and the cost of collection would be high. Thus, Dalton suggested to rely on few substantial taxes rather than on many. To put it in his words, “It is better to rely on few substantial taxes rather than on many. To put it in his words, “It is better to rely on few substantial taxes for the bulk of revenue.” Dalton was of the opinion that too many taxes may spoil the efficiency of the administrative system, and hence, it is essential to have a limited number of taxes to maintain the efficiency of the administration. Again, supporting the case of multiple taxation, Prof. Arthur Young defined a good tax system as, “If I were to define a good tax system it would be that of bearing lightly on infinite number of points, heavily on onone.” But, it should not have regressive effects.
Thus, the burden of taxation should be widely distributed to the entire economy without causing much harm to anyone. Hence, it is concluded that the tax system should be based on the principle of multiple taxation without sacrificing the character of productivity and the economy. Thus following arguments have been advanced in favor of multiple taxations.
Arguments in favor of Multiple Taxation:
(1) Multiple tax system leads to a just and equitable burden of taxation since, it is composed of both progressive and proportional taxation, direct and indirect taxes.
(2) An individual finds it difficult to escape from the purview of taxation. If a person evades a tax on one account, he pays the tax on another account because of the multiplicity of taxes. For instance, tax evaded on personal income may be paid by the person concerned through commodity taxation. Hence, tax evasion is not easy under multiple tax systems.
(3) Government is able to collect sufficient revenue to meet the growing needs of society.
(4) Tax structure become broad-based covering almost every sector and person in the country.
(5) Multiple tax system satisfies most of the canons of taxation such as equity, elasticity, diversity, flexibility, etc.
However, multiple taxations are also subject to certain qualifications. Multiple tax systems should not be composed of numerous taxes. Excessive taxation in the name of multiple taxations must be avoided, for though multiple tax system is generally preferable to a single tax system, too much multiplicity is not desirable, since it may sacrifice the canon of economy, productivity, and convenience. Too much multiplicity of taxes may lead to inconveniences to both the taxing authority and the tax-payer as well as to the general public. Thus, economic necessity and feasibility should be the guiding principle in deciding how many taxes should be imposed.