CA Foundation · Business Economics · Public Finance
A tax authority spends Rs 12 crore to collect Rs 150 crore of tax revenue. Which canon of taxation is it satisfying, and what is the collection cost as a percentage of revenue?
This reflects the canon of economy, which says collection costs should be small relative to revenue. The cost is 12 divided by 150, times 100, which equals 8% of revenue collected. The 12.5% figure comes from using the wrong base.
- ACanon of economy; 8%Correct
- BCanon of economy; 12.5%
- CCanon of certainty; 8%
- DCanon of equity; 12.5%
Explanation
Collection cost as a percentage of revenue is 12/150 × 100 = 8%. Check: 8% of 150 = 12. A low cost of collection relative to yield reflects the canon of economy. Using 150/12 or 12/96 gives the wrong figure of 12.5%, and equity and certainty are unrelated to collection cost.
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