Imposition of tax is subject to constitutional and other basic legal principles that govern civilized societies. The principles are adopted to ensure that taxes are efficiently and fairly collected and applied for the common good of the people from which and for which the taxes are collected. The most important principles that are embraced in modern societies include, (1) the principle of legality, (2) the principle of equality, (3) the principle of fair administration, (4) the principle of proportionality and ability to pay, (5) the principle of non-retroactivity.
- Principle of Legality
Tax must only be levied in accordance with lawfully enacted statutes, that a tax must be applied impartially, and that the revenue raised by a tax must only be used for lawful public purposes. This principle is enshrined in the constitutional provisions of:
- Sections 191, which provides for the enactment of laws through parliamentary Bills
- Section 121 which provides for presentation of Money Bills (including Bills that provide for the imposition, repeal, remission, alteration or regulation of taxes)
- Section 241(1), which states that a tax shall not be imposed, except as prescribed
- Section 240 (b) (iii), which states that government revenue must be applied on expenditure that promotes the equitable development of the country.
- Principle of Equality and Fair Administration
This principle applies to other laws as well and it requires that the law must be applied equally and without exception to all those in the same circumstances. It must be applied completely and impartially, regardless of the status of the person involved. No one may receive either preferential or discriminatory treatment in the application of the law or may be denied procedural rights to challenge application of the law to him or her. It however does not prohibit unequal where there is rational basis to believe that equal treatment of certain persons may lead to unfairness. For example, where it is apparent that a taxpayer would destroy evidence or flee the jurisdiction if an appointment to audit is sought as opposed to a visit without notice.
- Principles of Proportionality and Ability to Pay
The principle that tax liability should be based on the taxpayer’s ability to pay is accepted in most countries as one of the bases of a socially just tax system. This principle is not stated explicitly in the constitution. The constitution, however, does states that the burden of taxation must be shared fairly.
- Transparency and Accountability
This provided in section 240 which provides the guiding principles of public finance. It states that there must be transparency and accountability in the development of or formulation of macroeconomic frameworks, social-economic plans and the budget.
- Principle of Nonretroactivity
Tax statutes may not be applied retroactively. taxpayers should be able to make economic decisions with knowledge of their tax consequences. It is unfair to provide tax consequences for an investment or other economic decision that differs from the tax treatment at the time the decision was made. This principle is enshrined in section 122 of the constitution.