Kautilya’s System of Tax Administration

Kosha Moolo Danda, which means ” revenue is the backbone (of administration)” is sourced from Kautilya’s Arthshastra Part 8, Chapter 1. This implies that a nation’s status relies upon its fiscal power. He expressed that the Government’s power had source of treasury. This verse is used in the logo of Income Tax Department of India in Devanagari script.

Taxation as discussed by Kautilya

Arthashashtra was the first authoritative text on Public Finance, Public Administration and the Fiscal Laws in this country. In Arthashashtra, Kautilya has mentioned various types of taxes and duties such as those imposed on agricultural produce, trade, octroi, tolls and custom duties. Some of the important taxes were as follows:

• Custom Duty (Sulka), which consisted of import duty (praveshya), export duty (nishkramya) and gate tolls / octroi (dwarabahirikadeya).
• Transaction tax (vyaji), which included manavyaji (transaction tax for Crown goods)
• Share of Production (Bhaga) which included 1/6th share called (Shadbhaga)
• Tax in cash called (Kara)
• Taxes in Kind (Pratikara), which included Labour (vishti), for military (Ayudhiya)
• Counterveiling duties (Vaidharana)
• Road Cess (Vartani)
• Monopoly Tax (Parigha)
• Royalty (Prakriya)
• Taxes paid in kind by villages (Pindakara)
• Army Maintenance Tax (Senabhaktham)
• Surcharges (Parsvam)

The basic premise of Kautilya’s taxation doctrine was that public should not be exploited by imposing tax more than their competence to pay. People should be willing to pay so that the receipts can be effectively used to build social and physical infrastructure.

Kautilya’s System of Tax Administration and Present Day Tax System

There are many similarities between the current day tax system and the Kautilya’s system of Tax administration prevalent more than two thousand years ago. For example, Kautilya had specifically laid down the terms for taxation, without any scope for arbitrariness. Further, he fixed a time table for payment of taxes and also what share of the produce or product value is to be paid as tax. Further, the stance of Kautilya on a kind of progressive taxation and ability to pay principle are followed in modern day practice also. Further, the personnel responsible for collection of the tax needed to keep proper record of the entire collection as done today. There were additional taxes for emergency situation (such as tax on liquor levied during war or emergencies).