Abstract of the Article:
Taxation and Tax Administration as Depicted in Ancient Indian Manuscripts
Four maxims of taxation viz of equality, of certainty, of convenience and of economy have been prescribed by Adam Smith in his celebrated book, ‘The Wealth of Nations’ (1776). Most of these canons had already found a place in ancient Indian texts. Voluntary tax compliance was stressed. Laws were later complied as manuscripts, prescribing duties of both for kings & for citizen, highlighting the ethical values.
By 4th Century B.C. system of public finance in India, was quite developed, as is evident from Kautilya’s Arthasastra, Brahmamical, Jain and Buddhist texts, which acknowledged ‘Financial planning’ as life-breath of the State. These ancient texts provided details of ways & means of creating an abundant treasury (Kosha) that was an inseparable part of seven organs of the state machinery (Saptanga).
Manusmriti deals with seven organs of the state like king, ministers, capital, realm, treasure, army and ally. Kautilya puts the same, albeit in a different order like swami, Amatyas, Janapada, Durgs (forts), Kosha, Danda, Mitra and Shatru. He changed the previous order of priority and added a new element viz. Shatru (Enemy).
This Article discusses, sources of revenue, its significance, methods of collection and its applications, as stated in the ancient Indian texts like Manu Smriti, Shanti Parva, Shukra-nitisara, Arthashastra and also contemporary Jain/Buddhist manuscripts, thereby giving the reader an insight into History of Taxation in India in ancient period.
I. INTRODUCTION
You raise the rod of justice and deviants from the righteous path are restrained at once, disputes get resolved, the weak feel protected, where wealth abounds kinsmen are not scarce, but you are the perfect kinsmen to rich and poor alike”– Kalidasa[1] in ‘Abhignanshakuntalam’
In ancient time, after every war a new political order would set in. The King (usually leader of the winning group) needed financial resources to carry out his functions and to wage a new war. Apart from war booty, the ruler had to look for alternative ways, for ensuring steady flow of revenue. King would persuade citizen to forego a part of their earnings for state activities. People had to be motivated to do so. Enactment of law first arrived in the shape of religious/moral preaching in a series of duties. Soon it became a privilege of the sovereign to enforce rules with a right to punish for disobedience. One of the oldest recorded events i.e. around 6000 years ago, w.r.t existence of taxation is clay cones of Sumer, with the inscription “There were the tax collectors”. Vedic manuscripts reveal that it was the business of the state to promote Dharma (religion), Artha (finance), Kama (social wellbeing in a wider perspective) & Moksha (liberation from birth cycles).
As the public finance become more and more complex, a method of compulsory and quantified contribution was found necessary. By the fourth century B.C. the system of public finance was quite developed, as is evident from Kautilya’s ‘Arthasastra’, the Brahmamical, Jain and Buddhist texts. Financial planning was acknowledged by Manu, Kautilya and Shukra as the life-breath of the state. These ancient texts provide detailed descriptions of the ways and means of creating an abundant treasury (Kosha), as an inseparable part of the seven organs of the state machinery (Saptanga). These texts describe the modes of taxation, with specifications for levying normal and additional taxes, in different conditions and for different categories of citizen.
II. DESCRIPTION OF PUBLIC FINANCE, PERIOD-WISE
a) IN ANCIENT VEDIC TIME
Booty in war was an irregular source. Bali (religious sacrifice) in Rig Veda means a gift or religious offering. Kalidasa defines this term as a tribute to the king, procured for the wellbeing and prosperity of the subjects. Kautilya used this term as one of the sources of revenue from the Kingdom. Another term, ‘Bhaga’ has been interpreted as octroi duty or land tax and the share of produce payable to the state.
The term ‘Kara’ did not figure in Vedic literature. It usually meant a general tax on land in shape of a fixed proportion of the crop and on movables. The term ‘Shulka’ was more like a toll tax, or a customs duty levied at ferries, passes, roads, etc. Shanti parva (Mahabharat) quotes ‘Manusmriti’ and ‘Smirti of Yajnavalkya’ to give an insight into the administration of taxes at that time.
b) SHANTI PARVA (of MAHABHARATA)
The Shanti parva (Book of Peace), is the twelfth and the largest of eighteen books of the Indian Epic Mahabharata. It has 3 sub-books ‘Raja Dharma Parva’, ‘Apad Dharma Parva’ and ‘Moksha Dharma Parva’ comprising of 366 chapters. It has several treatises and fables embedded in it. It dedicates over 100 chapters on duties of a king and rules of proper governance.
The setting of this book is post-war time, when both sides have accepted peace and Yudhishthira has started to rule. The theory that “A prosperous kingdom must be guided by truth and justice” outlined by dying scholar Bhisma and advocated by Vidura underlines that prosperity can be ensured only through good governance and protecting rights & justice. Yudhishthira becomes the king, Bhima his heir apparent, sage Vidura the Prime Minister, Sanjaya the Finance minister, Arjuna the Defense and Justice minister, and Dhaumya appointed to service priests and the king. This book also includes a treatise on yoga as recited by Krishna. Shanti parva has been widely studied as a reference on jurisprudence and political prosperity.
Chapter 58 of Shanti parva underlines that the duty of a ruler and his cabinet, is to enable people to be happy and act sincerely.
Chapter 88 recommends the king to tax without injuring the capacity of wealth creators. Illustration like bees harvesting honey from flower, keepers of cow drawing milk without starving the calf or hurting the cow has been given. It has also been stated that those who cannot bear the burden of taxes, should not be taxed.
Several chapters, such as 15 and 90 of the parva, direct ruler to rule according to dharma; He should lead a simple life and should not use his power for luxuries of life. Shanti parva defines dharma in terms of Satya (truth), Ahimsa (non-violence), Asteya (non-stealing of property), Shoucham (purity), and Dama (restraint).
Chapter 109 of Shanti parva asserts rulers have a dharma (duty) to help to uplift all living beings.
Chapter 267 suggests that judicial staff should reflect before sentencing, that punishment is proportionate to the crime, to avoid harsh and capital punishments and to never punish the innocent relatives of a criminal for his crime.
The king had the authority to frame rules of taxation and tax-collection, as described in Shanti parva. Apart from statecraft (Raja dharma), it also provides a theoretical framework of taxation in ancient India. Ancient Indian philosophy expects the public finance to be a properly structured system, benefitting all.
Mahabharata declares: ‘Righteousness is called Dharma. King has been advised to constantly keep in view all the important aspects of the growth’.
In the words of Bhisma “With a sixth part, making a fair calculation of the produce of the soil, as his tribute, with fines and forfeitures collected from offenders, with the other taxes, according to the scriptures, upon merchants and traders in exchange for the safety granted to them, a king should fill his treasury[2]”.
“Realizing these, just taxes and governing the kingdom properly, the king should’ carefully act in such a way that his subjects may not suffer from want[3]”.
“Never desire to fill your treasury by acting unfairly of from covetousness. That king who does not follow the scriptures to acquire riches and religious merit[4]”.
“Follow the example, O king, of the flower vendor and not of the charcoal maker, acting thus and satisfying the duty of protecting you may be able to enjoy the Earth forever[5]”.
“If in attacking an enemy’s kingdom your treasury is exhausted, you may replenish it by taking wealth from ail except Brahmanas[6]”.
“The. king shares one fourth part of these righteous acts which his subjects, well Protected by him, perform in his kingdom[7]”.
Further, in Chapter LXXXIII, Rajadharma, Anushana Parva, Appointment of Ministers and Counsels has been discussed.
c) IN YAJNAVALKYA SMRITI
Yajnavalkya Smriti is based on Manu-Smriti but is more logical and synthesized. Yājñavalkya of Mithila was a legendary sage of Vedic India credited with the authorship of the Shatapatha Brahmana (including the Brihadaranyaka Upanishad), besides the Yoga Yajnavalkya. Yajnavalkya Smriti ordains as under:
“The ruler of men (a king) should be of great enthusiasm, vast aims (liberal and intelligent), remembering the deeds, serving the elders, disciplined, endowed with equanimity of good family, truthful in speech, pure, non-procrastinating, of strong memory, non-lowly, and also non-harsh. He should be righteous and without bad habits, intelligent, brave and a knower of secrets, and guardian of his weak points. (He should be) well-versed in the knowledge of Anviksiki, in Danda-rule (in the theory of punishment), in Varta (in Economy) and so also in the three-fold sciences called Trayi[8]”.
“After having made a gift of land, the King (literally the lord-of the-land) should cause a document to be drawn up for the sake of information of good kings (who will come) in future[9]”.
“In every one of these let him appoint supervisors who are skilful, pure, and experts and who are active in matters of income and expenditure[10]”.
“Furnishing protection, rising up let him inspect income and expenditure, personally. After that having looked into cases (awaiting decision) and having bathed let him eat at his pleasure[11]”.
“The gold brought by his agents, let him deposit in his treasure chests. After that let him see the spies and then let him send away his messengers, being attended by his ministers[12]”.
“He takes the sixth part of the virtuous deeds (of his subjects) by protecting them with justice. Because the protection of his subjects, is greater than all gifts[13]”.
“When not protected, whatever sin, subjects commit from that verily goes to the king the half because he takes taxes from them[14]”.
“Let him banish the takers of bribes, after having deprived them of their wealth. Let him settle always in his kingdom the & strotriyas (by giving them) grants, titles and hospitality[15]”.
d) MANUSMRITI AND TAXATION
“I should imagine the revenue laws of the ancient Hindoos must have been contributed to the sacred compiler by some very needy finance minister of the day”- James Wilson (referring to Manu Smriti in his Budget speech, India 1860).
Chapter VIII of Manu smriti deals with ‘Rajadharma’ and incidentally makes a few provisions about taxation and revenue administration. The subject of ‘Rajadharma’ treated in Chapter VII of Manu-Samhita is most valuable. It not only deals with the duties of the king, but also lays down the principles of taxation and points out the importance of the coercive authority symbolized by the term ‘Danda’. We get clearer notions of taxation in the Manu smriti than in any other earlier ancient texts. Written in verse, these Dharma-sutras are the earliest texts dealing with the duties of the king and the social order and provide laws of property ownership.
Thus, we find that taxation, revenue collection, public finance and overall financial administration in Manu Smriti is largely humane, compassionate, and considerate, but at the same time strict, rule-bound, hierarchical and systematic. Although, the date of Manu smriti has been a subject of considerable debate, it is generally recognized to be one of the most ancient texts on the principles of governance in India. Kautilya himself acknowledges to have drawn from it extensively in his book ‘Arthashastra’. The overall principles of taxation in Manu smriti are given in Chapter 7. Taxation should enable the king to perform his functions and should enable traders and economic agents to produce and retain adequate fruits of their trades. The Manu-Smriti states basic principle of taxation as follows: –
“Considering the protection of that which is already there, and that which is to be increased the King should levy tax on his traders[16].” Thus, the protection of the tax-base (or productive-base) and its augmentation become the first principles of taxation.
In the next sloka, this is expanded upon “That which would enable the King to perform his functions of looking after (the welfare of people) and traders to remain with the fruits of their trades, this, having been well-considered, the King should levy a tax[17]”.
“The tax should be annual, and that it should be collected by reliable functionaries. In collecting the tax, the King should be fair between his subjects, as fair as a father, between his sons[18]”.
The King should never overtax. Taxation should never be detrimental to the spontaneous growth of the tax base. Metaphors[19] of a leech, bee and calf are used to bring this point home. In this example, it has been suggested that the amount drawn is always too small to be detrimental to the growth of the base. Similarly, taxation should be moderate enough to be conducive to the growth of the tax-base.
Further on, in the same chapter, a warning is issued against excessive tax-greed[20] that will destroy the productive base of the system. It has been stressed that, if the king’s servants, connected with the government of the realm, are often found to be exacting and deceitful; the king shall protect his subjects from (the exactions of) these officials[21].
“The king shall excommunicate from the country corrupt officials, who would receive undue gratifications form suitors (at their courts) and confiscate their goods as well[22]”.
“Maids, messengers, and menials, engaged in the king’s service, shall be daily paid their wages at varying rates according to the nature of their posts and services[23]”.
“Taking into consideration the bought-price as well as the sale-price of his goods, the cost of conveyance, the costs of his daily living, and other contingent expenses, as well as the cost of ensuring safety to his goods (Yoga-Kshema), the cost of policing the forests, rivers, hill passes etc., he shall levy taxes on merchants[24]”.
“The king, after due deliberations, shall always impose taxes on profit of traders and cultivators, as well as on those of the state[25]”.
Based on religious sanction, the ruler’s right to levy taxes and contributions, and the obligation of the people to pay them on an implied contract between the state and the subjects, had important corollaries. The right to tax solely rests on the state’s discharging its appointed duties. “A king who (duly) protects (his subjects) receives from each and all the sixth part of their spiritual merit; if he does not protect them, the sixth part of their demerit also (will fall on him[26])”.
“Let the king take one-twentieth of that (amount) which men, well acquainted with the settlement of tolls and duties (and) skillful in (estimating the value of) all kinds of merchandise, may fix as the value foreach saleable commodity[27]”.
“Once in five nights, or at the close of each fortnight, let the king publicly settle the prices for the (merchants[28])”.
“All weights and measures must be duly marked, and once in six months let him re-examine them[29]”.
“Let him daily look after the completion of his undertakings, his beasts of burden, his carriages, (the collection of) his revenues and disbursements, his mines, and his treasury[30]”.
Commenting on the scheme of things in Manu smriti, great British scholar Sir Monier Williams[31] argues that according to European standards, it is an unsystematic compilation of previous sources instead of being an orderly codification of national statutes and customs. He goes on to say that by blending civil and criminal law with religious, moral, and ceremonial precepts and philosophical doctrines and metaphysical theories, the so-called code of Manu confounds the ordinances of government with the obligations of religion, domestic life and private morals.
e) PUBLIC FINANCE IN SHUKRA NITISARA
Period of Shukra-nitisara is rather uncertain. Yet it is a very important work of ancient Indian polity as it does not limit itself with theoretical discussion but gives a more detailed picture of the administrative machinery. Besides discussing the duties of the king and functions of his ministers and officers, the work describes the problems of foreign policy and methods of warfare. Civil administration is described in detail. We get account of judicial administration also. Vivid detail of the seating arrangement in the royal court on formal occasions and different grades of feudatories is also described. The portfolios and working of the ministry with the assistance of the secretaries under the control of the king is found. Only Sage Shukra has prescribed the judicious percentage of the state income, to be spent on different items. Details of army administration, recruitment, their training, salaries, identification of martial types of elephants, horses, and manufacturing of weapons, are also found.
Four maxims of taxation viz of equality, of certainty, of convenience and of economy have been prescribed by Adam Smith in his celebrated book, ‘The Wealth of Nations’ (1776). Most of these canons already found a place in Shukra-nitisara. It has been stated that- The king should collect funds by hook or by crook, thereby maintaining the commonwealth and the army as well as sacrifices[32].
The collection of treasure is for the maintenance of the army and the subjects and for the performance of sacrifices. This leads to the king’s happiness in this life and thereafter; otherwise, it leads to misery[33].
Shukra Nitisara prescribes that,
> in normal times the king should not increase his treasure by augmenting punishment, land revenues and duties, but by taking dues from holy places and properties consecrated to divine purpose. For maintenance of army, he should collect special fines and duties, etc. Enhanced collections be made only under exceptional circumstances. The king should receive the wealth of the rich men in times of danger by supplying them place to live. But when he is free from danger, he should return the amount to them together with interest. Loans are prescribed from rich people in difficult times. These, however, should be repaid as soon as the danger is over with interest[34].
> The king should also carefully preserve the wealth that has been collected. There is great trouble in the earning and a four-fold difficulty in the maintenance (of wealth). It is the earner who gets pain when the accumulated wealth is destroyed. Even wives and children do not feel that, so how could others? There is no greater fool than the man who knows how to earn, but not to maintain what has been earned. Vain is his exertion in earning[35].
> One should keep his wealth like a miser & give away at crisis time, liberally; otherwise, he displays his foolishness in the matter of spending his own wealth. One should try to understand the real nature of goods; the king should keep the jewels after having them tested by experts, as well as by himself. There should be a high price, low price and middling price in the valuation of all things. Sulka or Duty is the king’s share received from buyer and seller. The regions of Sulka or Duty are marketplaces, street, and mines. Duties are to be levied on goods only once. The king should receive the thirty-second portion from the seller or buyer.
> The twentieth or sixteenth part, as the duty, is not a drawback on the price. The king should not realize duty from the seller when he makes a loss. He should receive it from the buyer after seeing that he is a gainer. If the seller is at a loss, duty is to be realized from the buyer. Having ascertained the amount of produce from the measured plots of land, whether great, middling, or small, the king should desire revenue and then apportion it among them[36].
> The king should receive rent from the peasant reasonably. It is to be realized in the fashion of the weaver of the garland, not like a coal merchant. A coal merchant sets fire to the woods to make charcoal and, thus, destroys the whole property. But the weaver of garlands plucks from the only trees those flowers that are full blown and preserves the rest, as well as trees, for future use. That agriculture is successful which yields a profit twice the expenditure (including government demand) after duty considering the variation in actual produce, e.g. great, middling or small. The king should realize one-third, one-fourth, or one half comes from the places which are irrigated by tanks, canals and wells, and by rains and by rivers, respectively. Where rivers are irrigators, the cultivation is certain. Hence it may be taken as government revenue. Where rain is a source of moisture, agriculture is precarious and uncertain. Hence the demand of the state is to be very small. But where the tanks and artificial water supplies are the irrigators, cultivation is very difficult and expensive. Hence the government demand should be midway between the other two cases. He should have one-sixth from barren and rocky soils. If the king gets one-hundred silver karas from the cultivator, he should give back to him twenty karas[37].
> The king should realize from minerals at the following rates: half of gold, one-third of silver, one-fourth of copper, one-sixth of zinc and iron and half of glass and lead, after the expenses have been met. He should realize one-third, one-fifth, one-seventh, one-tenth, or one-twentieth from the collectors of grasses and woods etc. He should have one-eighth of the increase of goats, sheep, cows, buffaloes, and horses, and one-sixteenth of the milk of she-buffaloes, she-goats and female sheep. The king should make the artists and artisans work (for him), one day in the fortnight. If the people undertake new industries or cultivate new lands and dig tanks, canals, wells etc., for their good, the king should not demand anything of them until they realize profit twice the expenditure. That is, they should have remissions and suspensions of revenue for periods. This is how wastelands are to be improved and new enterprises encouraged.
> The king should promptly realize the land revenues, wages, duties, interest, bribes, and rents. The king should give to each cultivator the deed of rent having his own mark (seal). Having determined the land revenue of the village, the king should receive it from one rich man in advance, or as a guarantee (for the payment); or the king should appoint an officer called ‘Gramapas’ by paying one-sixteenth, one-twelfth, one-eighth or one-sixth of his own receipt. Having divided the whole land into several proprietorships, the king should collect the revenue from and through the man who is responsible for the total dues of the village[38].
Though Shukra-Nitisara does not specify any structural arrangements of revenue collection, yet it lays down the principles of taxation. The taxation prescribed in Shukra-nitisara is traditional but humane, generous, and compassionate.
f) FISCAL MANAGEMENT- METHODS PRESCRIBED IN ‘ARTHASHASTRA’
The Arthashastra is an ancient Indian treatise on governance, statecraft, diplomacy, financial policy, military strategy and duties of king etc. it was presumably written and edited between the 3rd century BCE and the 3rd century CE by Chanakya who is also addressed as Kauṭilya and Vishnugupta. Till 12th Century, Rulers followed The Arthashastra. Thereafter, it somehow was lost by disuse and was rediscovered in 1905 by R. Shamasastry of Mysore State, who published it in 1909 followed by its English translation[39] in 1915. Chanakya assisted Chandragupta in his rise to power, who founded the Mauryan empire. Chanakya remained as chief advisor to Chandragupta and his son Bindusara.
The title Arthashastra implies it to be “the science of wealth”. Kautilya writes- “The source of the livelihood of men is artha (wealth); that is to say, the territory [and the inhabitants following various professions] is the wealth [of a nation]. The science by which territory is acquired and maintained is Arthashastra – the science of wealth and welfare”. {15.1.1,2}
The Arthashastra covers broader areas, including nature of government, law, civil and criminal court systems, ethics, economics, trade, theories on war, methods for selecting ministers, diplomacy, nature of peace, duties and obligations of King etc. The Arthashastra is divided into 15 books, 150 chapters & 180 topics[40], as follows:
|
Book |
Subject | Description |
| Book-I | Introduction/Duties/Training
Chapters-21, Topics 1-18 |
Association with aged; restraint of organs of sense; the creation of ministers, councillors and priests, ascertaining the character of ministers and meetings, institution of spies. Protection of parties for or against own cause in own state; winning over the factions for or against an enemy’s cause in enemy’s state; the mission of envoys; protection of princes; conduct/treatment of a prince under restraint, the duties of a king; duty towards the harem, personal safety |
| Book-II | Activities of Superintendents
Chapters-36, Topics 19-56 |
Duties of Chamberlain (Sannidhata), Revenue Collection by the Collector-General, Accounting, Conduct of Government servants, Royal writs and mining. |
| Book-III | Law & Justice
Chapters-20, Topics 57-75 |
Forms of agreements, legal disputes, marriage, inheritance, buildings, non-performance of agreements; recovery of debts and deposits, slaves and labour laws, co-operatives, purchase and sale, gifts and sale, ownership, robbery, defamation, assault, gambling, and betting, miscellaneous |
| Book-IV | Removal of Thorns
Chapters-13, Topics 76-88 |
Protection of artisans, merchants; remedies against calamities; suppression of the wicked by foul means, detection of criminal tendency by ascetic spies; seizure of criminals on suspicion, examination of sudden deaths, trial and torture to confess, protection of government departments, fines in lieu of mutilation of limbs; death with or without torture; sexual conducts, atonement for violating justice. |
| Book-V | Conduct of Courtiers
Chapters-6, Topics 89-95 |
Awards of punishments; replenishment of the Treasury, subsistence to government servants; conduct of courtiers, timeserving, consolidation of kingdom and sovereignty. |
| Book-VI | The Source of Sovereign States, Chapters-2, Topics 96-97 | Elements of sovereignty; concerning peace etc. |
| Book-VII | Six-fold Strategy
Chapters-18, Topics 98-126 |
The six-fold policy, deterioration, stagnation and progress, alliances, equal, inferior and superior kings, agreement made by an inferior king, neutrality, treaty of peace, war after peace, combined powers, assailable enemy, strong enemy; causes of dwindling, greed and disloyalty of the army, combination of powers, agreement of peace with or without terms, double policy of peace and war. Assailable enemy and friends, acquisition of land, measures conducive to peace with a strong enemy, conquered enemy and king, making peace and breaking it, circle of states. |
| Book-VIII | Vices and Calamities
Chapters-6, Topics 127-134 |
Calamities and Sovereignty, troubles of the king, men, group of obstructions and financial troubles of army and friends. |
| Book-IX | King preparing to March into Battle
Chapters-7, Topics 135-146 |
Knowledge of power, place, time, strength and weakness, time of invasion, recruiting the army, equipment, arraying a rival force, annoyance in the rear, remedies against internal and external troubles, loss of men, wealth |
| Book-X | Invasion and War
Chapters-6, Topics 147-159 |
Encampment; march of the camp; protection of the army in times of distress and attack, of treacherous fights, encouraging army, enemy’s armies; battle-fields; the work of infantry, cavalry, chariots and elephants; distinctive array of troops in respect of wings, flanks and front; distinction between strong and weak troops; battles with infantry, cavalry, chariots and elephants; array of the army like staff, a snake, a circle or in detached order. |
| Book-XI | Conduct of Confederacies and corporations
Chapters-1, Topics 160-161 |
Causes of dissension; secret punishment |
| Book-XII | On the Powerful/ Weaker King
Chapters-5, Topics 162-170 |
Duties of messengers; battle of intrigue, slaying the commander-in-chief, inciting a circle of states, spies with weapons, fire, and poison; destruction of supply of stores, Granaries, capture of enemy by secret contrivances or army; and complete victory |
| Book-XIII | Means of Capturing a Fort
Chapters-5, Topics 171-176 |
Sowing the seeds of dissension; enticement of kings by secret contrivances, work of spies in a siege, operation of a siege restoration of peace in a conquered country. |
| Book-XIV | Secret and Esoteric Practices
Chapters-4, Topics 177-179 |
Means to injure enemy, wonderful, and delusive contrivances, remedy against injuries of own army. |
| Book-XV | Organization of a Scientific Treatise, Chapters-1, Topic 180 | The Plan of a Treatise, all verses dealing with agreements between kings collected together in this section, starting with the nature of treaties. |
Mentioned in Book-II are:
> ‘Sannidhata’ attends upon the king and looked after the construction of the treasure-house, trading house, the store house of grains, the store house of forest produce, the armory and jail.
> Chapters XIII-XXIII describes duties of various Superintendents, for Goldsmiths, Stores, Commerce, Forests, Armory, Weights and Measures, Time, Tolls, Weaving, Agriculture, Liquor, Slaughterhouse, Prostitutes, Animals (separately for Cows, Elephants, Horses), Chariots, Pasture lands and City Superintendents.
> Chapter VI describes the business of collection of revenue by the Collector-General. Kautilya advocated limiting the taxation power of the State, having low rates of taxation, maintaining a gradual increase in taxation, and devising a tax structure that ensured compliance. He strongly encouraged foreign trade & regarded economic activity as the driving force. He went to the extent of saying that revenue should take priority even over the army, because sustaining the army was possible only out of a well-managed revenue system.
> Chapter XXXV prescribes duty of revenue Collector, with his staff &
THE SCHEME OF TAX COLLECTION IN ‘THE ARTHASHASTRA
“As one plucks the ripe fruits, one after another from a garden, so should the king from his kingdom. Out of fear of his own destruction, he should avoid unripe one’s which give rise to revolts”. -Stocking the Treasury- Arthashastra, 5.2.70
The means of increasing the wealth of the State have been listed as- Ensuring the prosperity of state enterprises, continuing well tried [and successful] policies, eliminating theft, keeping strict control over government employees, increasing agricultural production, promoting trade, avoiding troubles and calamities, reducing [tax] exemptions and remissions and increasing cash income {2.8.3}. Obstruction, misuse of government property and false accounting by government servants lead to a reduction of wealth. {2.8.4}.
Fair taxes build popular support for the king. Manufacturers and artisans were subject to a flat tax. Agriculture on privately owned land was taxed at the rate of 16.67%, exempted at the time of famine, epidemic, previously uncultivated or damaged during a war. New public projects such as irrigation and water works were exempt from taxes for five years, and major renovations to ruined or abandoned water works were granted tax exemption for four years. Temple and gurukul lands were exempt from taxes, fines, or penalties. Trade into and outside the kingdom’s borders were subject to toll, fees, or duties. Taxes varied between 10% to 25% on industrialists and businessmen, and it could be paid in kind or in cash. The complete list of taxes mentioned in the text is:
|
1.Customs duty (sulka) which consists of: import duty (pravesya) export duty (nishkramya) and octroi and other gate tolls (dwarabahirikadeya) |
5. Taxes in kind (pratikara) including Labour (vishti) Supply of soldiers (ayudhiya) | 9. Royalty (prakriya) |
| 2. Transaction tax (vyaji) including manavyaji (transaction tax for Crown goods) | 6. Countervailing duties or taxes (vaidharana) | 10. Taxes paid in kind by villages (pindakara) |
| 3. Share of production (bhaga) including l /6th share (shadbhaga) | 7. Road cess (vartani) | 11. Army maintenance tax (senabhaktham) |
| 4. Tax (kara) in cash | 8. Monopoly tax (parigha) | 12. Surcharges (parsvam) |
REMISSION OF TAXES
Kautilya never supported atrocious collection of taxes. At required time he has advised king for ‘Remission of Taxes’ also. ‘The Arthashastra’ stipulates, restraint on taxes imposed, fairness and suggests that the tax should be “convenient to pay, easy to calculate, inexpensive to administer, equitable and non-distortive, and should never inhibit growth. Kautilya warns king on the overzealous tax collectors, who collect more. He who causes loss of revenue eats the king’s wealth, [but] he who produces double the [anticipated] revenue eats up the country and he who spends all the revenue [without bringing any profit] eats up the labor of workmen.” {2.9.13, 15, 17} From {3. 11.20}, we note that, in case anyone became bankrupt, debts owed to the state had priority over other creditors.
Kautilya knew that apart from collection mechanism, proper accounting was important. As per Arthashastra, superintendent of accounts shall have the accountants’ office constructed with seats (for clerks) kept apart and with shelves for account books.
DEVELOPMENT OF PRINCIPLES OF ACCOUNTING
Kautilya’s Arthshastra covers accounting principles and standards, role and responsibilities of accountants and auditors, the methodology of accounting, auditing, and fraud risk management. The superintendent was required to personally supervise the increase or diminution sustained in grains when they are pounded, frayed, reduced to flour, or dried after soaking in water, as per the given standards. The real fascinating approach was that he recognized conflict of interest between finance and auditing functions. He categorically stated that the head of finance and head of audit should independently and separately report to the king. Recognizing the possibility of ‘conflict of interest’, he proposed to separate offices of the Treasurer and Comptroller Auditor.
STRESS ON ETHICS AND MANAGEMENT INFORMATION SYSTEM
Kautilya acknowledged the co-relation between the ethical values and the professional skills. In accounting, he discussed fraudulent reporting. He devised a system of reward and punishment to ensure compliance. Kautilya focused on bookkeeping rules to record and classify economic data, emphasizing the critical role of independent periodic audits. The concept of continuous monitoring, auditing, verification, and vouching existed in his time. He realized that a proper measurement of economic performance was essential for efficient allocation of limited resources.
FRAUD RISK MANAGEMENT PRACTICES
Kautilya addressed the possibility of the financial fraud risks in 4th century BC, some of which are still used. Book-II, Chapter VIII describes detection of embezzlement by government servants out of State Revenue. Kautilya proposed a central investigation agency for a kingdom to do espionage work. Spies were positioned in all the departments and ventures to ensure that officers do not abuse their power. It is amazing that Kautilya identified forty different possible ways, used to embezzle the Treasury. This is one of the earliest records documenting embezzlements.
‘STANDARDIZATION OF MEASUREMENTS –
The 28 embezzlements related to documentation was broadly classified into:
a. Not recording a transaction,
b. Recording a fictitious transaction,
c. Recording a transaction incorrectly.
d. Unauthorized transactions,
e. Mismatch between the time of recording and the physical transaction
f. Use of defective standards related to physical goods.
CONDUCT RULES FOR OFFICIALS AND SYSTEM OF PUNISHMENT
Kautilya appears to be well-versed with the characteristics of bureaucrats and laid down some rules to prevent misuse of authority. For enquiries, Kautilya suggested that―” Separately examine the treasurer, the prescriber, the receiver, the payer, the person who caused the payment, the ministerial servants of the officer for financial frauds.” The concept of whistle blower is also found. The punishment for fraud depended on the nature and value of fraud. It ranged from nominal fines to death penalty. The victim of fraud was compensated for the losses suffered.
EMPLOYEES’ WELFARE AND VISION OF A WELFARE STATE
While government servants were always under suspicion of skimming off government revenues {2.9.32-34}, they were also rewarded for good work. ‘Those officials who do not eat up the king’s wealth but increase it in a just manner and are loyally devoted to the king shall be made permanent in service’ {2.9.36}. ‘An official who accomplishes a task as ordered or better shall be honored with a promotion and rewards.’ {2 .9 .9} The family of a government servant who died on duty was looked after by the state {5.3 .28-30}. The salaries of state employees are given in {5.3}. It is interesting to note that Kautilya fixes the ceiling on expenditure on salaries at one-quarter of revenue {5.3. 1}
The Arthashastra explores issues of social welfare, advising the king that in times and in areas devastated by famine, epidemic etc., or by war, he should initiate public projects and exempt taxes on those affected. Kautilya said that good governance and financial stability go hand in hand. According to him, there is stability if rulers (managers) are responsive, responsible, accountable, removable, and recallable. It has been observed- “In the happiness of his subjects lies the king’s happiness, in their welfare his welfare. He shall not consider as good only that which pleases him but treat as beneficial to him whatever pleases his subjects”. {1.19.34}.
The Arthashastra promotes a mixed economy of private and state enterprises. The private enterprises were taxed. Mines were state owned but leased to private parties for operations. The Arthashastra states that protecting the consumer must be on the priority list of the official. It is interesting to note that the state was held responsible for any failure to protect the public. If anyone’s property was unjustly appropriated and not restored, he was paid its value {3. 16.25-27}. Judges could modify the rate of interest if the king was responsible for the loss by not providing adequate protection {3 .11.3}.
With all intelligent ideas, there are demerits also. Kautilya has been criticized for being over obsessed with crafty tricks, stress on caste system and being gender insensitive. The Arthashastra served a working manual for a king rather than a narrative history book. It only gives a glimpse of the society at that time.
g) BUDDHIST SCRIPTURES AND TAXATION
The core philosophy of Buddhism is based around inter-dependence, compassion, and right livelihood. It provides guidance for restructuring both our individual lives and the economy to create a better world. Goal of the Buddhist financial principle is “the maximum of well-being with the minimum of consumption”. The Buddhist literature though do not provide elaborate detail of taxation, but it mentions tax on agriculture, merchandise, vendors and tolls on the gates and levies on the birth of an heir.
Buddhist scriptures acknowledge existence of taxation as a welfare tool. Some scattered remarks on optimal rate of taxation are found. Taxes were desired to be low and never higher than one sixth of gross production. Unlike Hindu texts, Buddhist do not agree on the divine status of the king. Accordingly, King’s right to levy taxes is limited to his efficient discharge of duties. If the rulers tend to cross the limit of taxation, it was described as, theft from the subjects. Buddha himself advised ‘Prasenajeet’, the king of ‘Koshala’ in the following words: –
“Do not harass human beings;. . . be not affected by arrogance. . . . do not take land revenue in excess of the share allowed by law”. . .(Buddhcarita XX:19-21)
“Tell me about your ninth dream,” the Buddha said to king Pasenadi, (Prasenajit)-
“I saw a deep pool with sloping banks overgrown with lotuses. From all directions, a wide variety of animals came to drink. Strangely, the deep water in the middle was terribly muddy. Yet the water at the edges, where all the thirsty creatures descended into pool, was unaccountably clear and sparking. This was my ninth dream. What does it mean?”
“This dream will come to pass in the future when rulers grow increasingly corrupt. Ruling according to their own whim and pleasure, they will not make judgments according to what is right. Being greedy, they will grow fat on bribes. Not showing mercy or compassion to their subjects, they will be fierce and cruel. These rulers will amass wealth by crushing their subjects like stalks of sugarcane in a mill and by taxing them to the last penny[41]”.
“Unable to pay the oppressive taxes, the citizen will abandon their villages, towns and cities and will flee like refugees to the borders. The heart of the country will be a wilderness, while the remote areas along the borders will teem with people. The country will be just like the pool, muddy in the middle and clear at the edges”.
In the “Acts of Buddha” 2:44, the philosopher poet-Aśvaghoṣa praises Buddha’s father, King ‘Sudhodhana’- “44. He desired not to take his tribute of one-sixth without acting as the guardian of his people; he had no wish to covet another’s property; he desired not to mention the wrong-doing of his enemies; nor did he wish to fan wrath in his heart”.
Asvaghosa has objected to excessive taxes in the Mahayana Buddhist scripture “Requested by Surata”. The Boddhisattva Surata upbraids the corrupt king of ‘Sravasti’: “Your Majesty, you levy harsh taxes and punish the innocent for no reason, Infatuated with your sovereignty, You never heed the future effects of your karmas(deeds)”.
Famous Buddhist philosopher, Nagarjuna[42] (150-250 CE), objects to high taxes in his precious Garland 4:251-253, as follows-
251. Provide extensive care for the persecuted, the victims of crop failure, the stricken, those suffering contagion, and for beings in conquered areas.
252. Provide stricken farmers with seeds and sustenance, eliminate high taxes levied by the previous monarch, Reduce the tax rate on harvests,
253. Protect poor from pain of wanting your wealth. Set up new tolls & reduce those that are heavy, also free traders from other areas with afflictions that come from waiting at your door.
The redistributive function of taxation is also discussed by Nagarjuna, not only from rich to poor but from richer to poorer region. Further, the redistribution of wealth to the needy is one of the four pillars of a king’s popularity. The other three being kind speech, sagacious conduct and feeling for the common good. The principle of need was also acknowledged by Asoka who proclaimed in his Fifth Rock Edict and Seventh Pillar and Edict that disadvantaged persons such as old people, orphans and prisoners must be looked after. A general theme of Buddhist writing on public revenue and expenditure is that both should be governed by rational principles.
This is the lesson that Kuttadanta Sutta[43] seeks to impart the King Mahavijita. Faced with the financial crises, the king plans a traditional sacrifice or yagna to please the gods. His priest suggests that instead of wasting resources, more rational means would be to provide the agriculturists and herdsmen with food and seed corn, traders with capital and government servants with wages. This would help increase production, reduce corruption, increase king’s revenue, and keep the people happy. Duties of king have been beautifully explained in a practical way, through many Jataka tales.
h) JAIN TEXTS AND TAXATION
Talking about the aspects of Jain literature and traces of financial administration in the Jain texts, Jagdish Chandra Jain in his book[44], contends that revenue and taxation were the chief support of the state. Revenue in ancient India was derived partly from taxation and partly from sources other than taxation. Jagdish Chandra Jain in his above book states that the ‘Vyavahara Bhashya’ mentions one-sixth of the produce as legal tax, but it seems that it varied according to the amount of the produce, the cost of cultivation, the condition of the market, and the nature of the soil. There were various sources of income to the state. Eighteen types of taxes[45] are mentioned in the Jain texts: taxes from cows, buffaloes, camels, goats, grass, straw, chaff, wood, coal, plough, threshold, pasture-ground, bullocks, earthen pots, hides and skins, food and any other tax imposed by will.
Taxation always included certain exemptions also. Exemptions from taxation were also granted to individuals under certain circumstances to some classes in the enjoyment of privileges. Apastamba and Vashishta concur in granting immunity from taxation to ‘shrotriyas’ women, minors, students, ‘tapasas’ or ascetics and blind, deaf, or dumb persons, artisans’ beggars, etc. like Buddhism, Jainism also uses stories to explain various propositions to common folk.
III. CONCLUDING REMARKS
Thus, ancient Indian texts contain several valuable guiding principles of governance and tax administration. Detailed study of these ancient texts will enlighten us about the astuteness of our ancestors w.r.t financial planning, good governance, etc. that will bring back into focus the excellent intellectual wealth of our ancient past. Such a study will enable us to adopt appropriate measures for development of our nation.
Note- The views expressed by the author are his personal views and should not be held as the official views on the issues discussed.
(Chandra Prakash Bhatia),
Additional Director (Investigation), ITSC (IBS-IV), Kolkata.
[1] Abhignanshakuntalam, (Shakuntala Recognized) 5 (8) in Plays of Kalidasa, KVK Sundaram, Patriot Publishers, New Delhi, 1988, p. 237
[2] A Prose Translation of The Mahabharta, (Shanti Parva), by M N Dutt, Elysum Press, 1903, Rajdharma, Anushana Parva, Chapter LXXI, P-107, 10
[3]Ibid Chapter LXXI, P-107, 11
[4]Ibid Chapter LXXI, P-107, 13
[5]Ibid Chapter LXXI, P-107, 20
[6]Ibid Chapter LXXI, P-107, 21
[7]Ibid Chapter LXXII, p-108, 19
[8]The Sacred Books of the Hindus Volume XXI, Translated by Rai Bahadur Srisa Chandra Vidyarnava, Sudhindra Nath Vasu, Allahabad.1917, Yajnavalkya Smriti- Chapter XIII- The Duties of a King, P-394, CCCIX.-CCCXL.
[9]Ibid, P-400, CCXXVIII
[10]Ibid, P-404, CCCXXII
[11]Ibid, P-407, CCCXXVII
[12]Ibid, P-408, CCCXXVIII
[13]Ibid, P-412, CCCXXXV
[14]Ibid, P-413, CCCXXXVII
[15]Ibid, P-414, CCCXXXIX
[16]Manu Smriti,Chapter 7.127
[17]Manu Smriti,Chapter 7.128
[18]Manu Smriti,Chapter 7.80
[19]Manu Smriti,Chapter 7.129
[20]Manu Smriti,Chapter 7.139
[21]Manu Smriti,Chapter 7.123
[22]Manu Smriti,Chapter 7.124
[23]Manu Smriti,Chapter 7.125
[24]Manu Smriti,Chapter 7.127
[25]Manu Smriti,Chapter 7.128
[26]Manu Smriti,Chapter 8.304
[27]Manu Smriti,Chapter 8.398
[28]Manu Smriti,Chapter 8.402
[29]Manu Smriti, Chapter 8, sloka 403
[30]Manu Smriti, Chapter 8, sloka 419
[31]Monier Williams, Indian Wisdom, pp.236-237
[32]The Shukraniti, edited by Binoy Kumar Sarkar, Oriental Books Reprint Corporation, New Delhi, 1914, Reprint 1975, Chapter IV, Section II, 3-4, p.138
[33]Ibid, Chapter IV, Section II, 5-6, p.138
[34] Ibid, Chapter IV, Section II, 17-22, p.138
[35]Ibid, Chapter IV, Section II, 64-72, p.140
[36]Ibid, Chapter IV, Section II, 210-221, p.147
[37]Ibid, Chapter IV, Section II, 222-232, p.147-148
[38]Ibid, Chapter IV, Section II, 233-2352 p.148-149
[39]Kautilya’s Arthasastra,Translated by Dr. R. Shamasastry, with An Introductory Note by Dr. J. F. fleet, ICS, Published by Mysore Printing and Publishing House, Mysore, 1915.
[40]Prakaranas
[41]MahasupinaJātaka- translated by Robert Chalmers, Stories of Buddha’s former births, available at www.suttacentral.net.
[42]The Precious Garland of Advice for a King, by the great Master, the Superior Nāgārjuna, translated by Jeffrey Hopkins, Chapter III, P-93-94
[43] The Kūṭadanta Sutta: On True Sacrifice A Discourse from the Dīgha Nikāya translated by Prof. T.W. Rhys Davids, Buddhist Publication Society, Sri Lanka, p 40-41
[44]Life in Ancient India as Depicted by Jaina Canons, (chapter II, P-61)
[45]Ibid, Chapter II, P-61.
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About the Author: Chandra Prakash Bhatia is an Additional Commissioner of Income tax (2006 batch). He has served in Bihar-Jharkhand, Gujarat, and West Bengal. He is interested in the financial history and has written several articles on such topics. At present, he is posted as Additional DIT (ITSC-I) at Kolkata. He has interest and inclination for the research in the Financial History. Hope that the readers of this article will send their feedback.
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