Principle of Taxation in Ancient India
Dr. B. Prasad
(Retired Dy. Gen. Manager, SBI)*
As defined in Wykepedia Dictionary taxes are ‘compulsory charges levied by a government for the purpose of financing services performed for the common benefit’. In the words of Mill, taxation is “the condition of the existence of governments”(Principles of Political Economy). There is no denying the fact that no government can function without incurring a considerable expense on governance and welfare of its people. And for this people’s contributions in the form of taxes are the foremost components of financial resources to the government. This position is not confined to modern days’ governments alone but existed through out the ages, ancient and medieval; rather its existence may be traced back to the evolution of mankind into political organization. The ancient India was no exception to this. There is no dearth of evidence in the form of references and inferences in the documents of this period. The Vedic texts, epics, smritis, puranas, Arthashatra, literary texts and epigraphs of the time, all equivocally dwell at great length about the paramount importance of taxes to governments. Starting with the Vedic period, there existed a regular system of taxation. The technical fiscal terms like ‘bali’, ‘shulka’,’bhaga’,‘udaja’, and ‘niraja’ are frequently mentioned in the literature of this period1 which reasonably and legitimately lend support to the view that taxation had evolved from voluntary to compulsory and regular in nature. The Rigvedic king was the ‘sole taker’ of taxes and even did not hesitate in using force to realize the state’s dues fallen in arrears2. The Atharvaveda refers to the state’s share ‘in village, in horses and in kine (cows)3′. However, it is not known what share the state had in the wealth of its people. It appears that in course of time during the Vedic period itself, taxation started affecting life of the people so much so that a tendency to escape from taxes started gaining ground among influential people of the society. The Brahmanas were the first to claim immunity from taxes possibly on the basis of being engaged in unproductive vocations4. However, the simple nature of Vedic taxation did not last long as it was no longer adequate to meet the growing needs of government arising out from sweeping economic, social and political developments that had taken place during the post Vedic period of Indian history. This gave birth to a number of general rules or canons of taxation.
Modern scholars on ancient Indian polity hold the principles of Hindu Taxation in high esteem. “That the constitutional law of taxation was a living law, regulating life”. Whatever the form of government there was, taxation was not an object of ruler’s caprice5. Some of the scholars go to the extent of asserting that the modern maxim of ‘ability to pay taxes’ and ‘the least sacrifice theory’ were the guiding principles in ancient India6. The historical accounts, however, do not subscribe to the eloquent estimates of these scholars as it would be evident from the critical examination of data available in the various texts of the period under review.
The first principle of modern taxation is that it is compulsory in nature. In ancient Indian texts, there are abundant evidences to show that taxes as compulsory payments were well
* 55, Unesco Apts., C-203, Patparganj, Delhi -110092
cherished and cultivated. Manu Smriti prescribes taxes to all and sundry. ‘Even a poor man who maintained himself by following some occupation, was required to contribute every year something by way of Kara (tax), while workers like cooks, artisans like blacksmiths, shudras who subsist by manual labour were required to work for the state one day in a month7. Kautilya goes a step a further and did not spare even a hermit who were required to pay taxes from the corus they had collected8. This system seems to have prevailed even during the Gupta period of Indian history as is revealed from Kalidasa’s Sakuntalam and Raghuvamsa. ‘The hermits too provided the king with a sixth part of the grains they gleaned thinking that it was a tax payable to him who protected them’9. However, the system of taxing all ushered into a little change later on which is evident from the writings of Lakshmidhara, a minister under Gahadavalas. He says that “everyone must contribute (taxes) to the extent of potential capacity”. He adds further that “he, who has no resources, should not be asked to pay taxes”10.
The king in ancient India is repeatedly exhorted in the literature of this period to respect the sacred laws as prescribed in the Holy Scriptures while levying taxes. The great epic, Mahabharata opines that “taxing according to reason is a means to preservation”. The king should fill his treasury “with a sixth part upon a fair calculation of the yield of the soil as his tribute with other fines and forfeitures levied upon offenders11. An identical view is held by very many other law-givers of the time. Vasistha, for instance, recommends the payment of taxes only when the king rules in accordance with the sacred laws12. Manu holds that the king should cause the annual revenue being collected by trustworthy officials and in matters of taxation he should obey the sacred laws and behave like a father to his subjects13. Apastamba, another law-giver asks the king to collect only lawful taxes14. The frequent reference to ‘lawful taxes’ has led many scholars to conclude that this was akin to modern principle of taxing according to law. They hold that taxes were fixed by the sacred laws and king had no authority to impose any new levy nor could he enhance the old one. K.P. Jayaswal, in his ‘Hindu Polity‘ holds that “the constitutional law of taxation was a living law regulating life… they have been fixed by law and the scales had been embodied in the sacred common law. The consequence was that whatever the form of government, the matter of taxation was not an object of ruler’s caprice”15. Jayaswal was followed by B.A. Saletore, who holds that “taxation was not a matter of either chance or caprice on the part of the monarch….the action of the king was circumscribed by the regulations laid down in the Dharmasastras”16. Another scholar, Balkrishna also strongly believes that ‘the abuse of arbitrary taxation was reduced to minimal by not allowing the king to levy any tax that was not sanctioned by the Vedic and Smriti laws or custom’17. It appears that these scholars have been swayed more by emotions than by the motives behind mention of sacred laws by ancient Hindu thinkers in regard to taxation. The frequent reference to sacred laws in their writings imply that only such taxes, which were specified by the state, were to be collected by the authorities. Nowhere in the above statements is it mentioned that taxes were fixed by the sacred texts. It is only Vasistha who has advocated that if the king did not rule in accordance with the sacred laws taxes should not be paid to him but even he does not say that taxes were fixed and articles to be taxed were decided for ever. Reference to ‘lawful taxes’ as prescribed by sacred scriptures was only a reminder or notice to the state / king against being oppressive in levying and collecting taxes. Therefore, too much is not to be read of the word, ‘lawful taxes’ as assumed by the above mentioned scholars. Further, it is a well known fact that right to tax and to impart righteous or unrighteous government always rested with the sovereign of the state. It was because in the sovereign alone vested the power to wield the sceptre of danda. Besides, it is also not proper to assume that the literature of this period refer to all taxes current during their time. The data supplied by them is meagre and scanty and moreover, it is seldom that they give a uniformity of thought and system. During the period under review a number of sacred texts came into existence but it is not clear which of the text worked as a guide to the king. In fact, there was no universal fiscal law applicable to all condition and all times. The state could freely and conveniently alter the existing rules so as to suit the purpose and adequately meet the need of the occasion. In view of these facts, the contention of these scholars that ‘taxes were fixed by sacred texts’, does not come out unscathed and is in fact reduced to mere fallacy.
The next canon of taxation as envisaged by ancient thinkers is that taxes should be moderate and not burdensome on its subjects. Manu opines that the king should “always fix in his realm the duties and taxes in such a manner that he, himself and the man who does the work receive their due reward”18. He continues that “as the leach, the calf and the bee take their food little by little, even so must the king draw from his realm moderate annual taxes”19. Kulluka, in his commentary on Manu states that taxes should be realised from “what is in excess of the capital (mooladhanamanuchchhindata)”20. Based on the above texts, Saletore believes that income and not the capital should be taxed. The leach, the suckling calf and the bee do not destroy the very source while taking their food21. Manu’s view is elucidated in the Arthasastra of Kautilya. “Just as fruits are gathered from garden as often as they become ripe, so revenue should be collected as often as they become ripe”22. Manu and Kautilya thus recommend for continuous levy but at the same time they also caution that if this maxim is indiscriminately applied it would result in financial suicide. Perhaps because of this fear Manu seems to have offered a supplementary to his previous text. He warns the king that he should not cut his own root by not levying any tax or the root of other (men) by excessive greed, because by cutting his own root or theirs he makes himself and them wretched23. He has offered his sober advice to the king that he should not take what ought not to be taken nor even though he is affluent, should he forego his just dues be they were so small24. Like Manu, Kautilya too has advised that ‘collection of revenue or of fruits when unripe was bound to sap the very source of production and to bring about an immense peril to the state25.
The fear of injuring the source and the sober advice to state to collect moderate taxes and that too in easy instalments have been advocated in very many other texts as well. Here also the precepts are loaded with picturesque similes and metaphors. The Udyogaparva of Mahabharata opines that ‘just as a bee draws honey but at the same time leaves the flower uninjured, similarly the king should tax his subjects without harming them. He should act like a bee and garland maker and not like charcoal maker26. The analogy of bee drawing honey little by little occurs in the Santiparva and elsewhere as well. The king is advised not to bruise the udders as the calf does not. He should suck his kingdom in the fashion of a leach taking blood mildly, a tigress carrying her cubs touching them with her teeth, in the fashion of a mouse which though having sharp teeth produces a gentle rocking of the feet when biting a sleeping person27. The text elaborates it further. It states that an intelligent king should milk his kingdom on the analogy of the calf. If the calf is permitted to suck, it grows strong and carries heavy loads. If, on the other hand, the cow is milked too much the calf becomes weak and incapable of being useful to its owner. Similarly, if the kingdom is taxed recklessly, the whole economy of the state will be paralysed’28. ‘Just as a person wishing for milk does not obtain by cutting the udders of the cow, so a king, who resorts to unreasonable taxes, saps the very incentive for production. The subjects, when properly looked, yield grain and cash to the state as gratified mother yields milk to her child’29.
The simile of taxing the kingdom and milking the cow repeatedly occurs in the classics and other authoritative works as well30. The tradition is maintained even in the late works on polity. The Pancatantra enjoins that the gardener plucks fruits and flowers but does not harm the trees; the bee sucks honey but does not damage the flower, in the same way the king should collect his taxes without causing any hardship to his subjects31. The text further states that one, who kills the goat, can at best get one meal but one who feeds it well, can get milk for several years31.
It would be observed that the foregoing canons of taxation conceived and advocated by the Hindu lawgivers lays an emphasis on the principle of continuous levy to be realised little by little (Alpalpa). But these small doses of taxes were sure to suck the people dry in the manner in which leaches, calves and bees help themselves upon their food. ‘Taxes, more taxes, still more taxes’ appears to be the slogan of Hindu fiscal thoughts32. However, Hindu thinkers had visualised the inherent danger of its abuse and therefore, they came up with a sober advice to the king. ‘Under no circumstances, the capital, which formed the sole basis of ones’ productive power, was to be taxed’. It was only the net income to be taxed as often as it was derived. The principle of taxing only income and not capital is undoubtedly laudable and salutary but the reality check reveals that it was the state which enjoyed the major portion of people’s income. The historical data of the period show that at least with the start of the imperial history of ancient India, the people paid three types of taxes, viz. the central, the provincial and local, each one of these with many other minor cesses. People very often used to suffer which is evident from frequent references to oppressive and arbitrary taxes resulting in people leaving their profession and migrating to other places33.
The Buddhist literatures also echo identical sentiments about levying taxes. The Divyavadana mentions as how the two good ministers of a king admonished him by cautioning that the kingdoms ‘are like the flowers and plants and fruit trees which if nourished properly , yield flowers and fruits at the proper time so the kingdom being protected yields taxes and revenue”34 .On the other hand the two evil ministers who immediately succeeded to the office of good ones, advised the king that just as sesame “does not oil unless it is made to try, turn to pieces, oppressed and pressed , so also is the kingdom’35. These two varied statements show that the nature of taxes entirely depended on the sweet will of the sovereign of the state.
Canons of taxation in analogical form occur in Tamil literature as well. In the Purram it is observed that even if the land is less than a ma, one could make a ball of dried paddy and continue to feed it to an elephant every day for a long time however, on the other hand even if the land is big and the elephant is allowed to eat at its will, the amount of damage caused in trampling will be enormous and much more than what it would normally consume. Similarly, if an intelligent king levies moderate and equitable taxes, his treasury would grow a thousand fold and he himself shall get recognition and fame. If he lacks in wisdom and is surrounded by evil officers and taxes his subjects recklessly like the elephant that enters the paddy store, he earns ire of all and ultimately brings the state to ruin and is despised36. The Kural, compares a king who asks his subjects to pay taxes more than what is due, to a high way robber with sword in his hand asking a lonely traveller to surrender all his possessions37. These analogies evidently refer to moderate taxes and of untoward consequences of oppressive taxes. They also refer to fixed usual revenue. The validity of these statements are, however, suspect as it is south India where we find taxes most unusual and heavy38. Kural’s statement refers to the collection of taxes and advises the king not to let his greed play with the people’s hard earned fruits of their labour.
The next principle of taxation as prescribed in ancient Indian scriptures is that if at all an increase in taxation is inevitable; it has to be gradual and not sudden and steep. The Mahabharata opines that little by little money should be extracted from prosperous subjects. The king should increase the burden of his subjects by and by like a person gradually increasing the load of a young bullock38. Kautilya also favours a gradual increase in taxes39. The sentiment is also echoed by Kamandaka. His advice to the king is that the subjects are like a delicate seed-shot , if properly nourished and cared for , it yields ample harvest in due time , so is the subjects of a state. Just as a cow is at one time tended and nourished and at other time milked, so are the subjects. A florist both tends and sprinkles water on his plants and culls flowers from them40.
In regard to trade and industry, by and large ancient texts favours taxing only the net income after taking into account purchase price and other expenses. The Mahabharata advises the king to “fix rules of taxation on traders after having considered their sale and purchase and expenses on the way”41. Manu also holds an identical view when he says that the king should take taxes from the merchants on their articles after proper enquiry about the sale and purchase price, the distance over which they have been brought, the expenses on the way of carriage and for safe guarding them from thieves and robbers and calculation of profit on total expenses42. Based on the above versions of ancient texts, U.N. Ghoshal rightly concludes that “this rule undoubtedly shows an appreciation of the difficulties attending the assessment of the merchants’ profit and indicates an attempt to throw the burden of taxation upon the net profit instead of charging the same upon the capital”43. This, Ghoshal compares with Sismondi’s first principle of taxation, viz: ‘that every tax should fall upon the revenue and not upon the capital44. Lakshmidhara, a minister with Gahadwalas also prescribes that taxes were to be based on certain primary considerations, e.g. the cost of establishment, maintenance charges and the cost of safe guarding the merchandise before the rates of taxes were fixed45. Further in this regard, Kautilya and Shukra advocate that taxes on commodities were to be realised only once46.
In the case of artisans, the Mahabharara advises the king that before taxing them , he should take into consideration the labour and skill involved and necessities of day today life required by them47.
The foregoing inferences to canons of taxation in Ancient India reveal certain maxims. The first and foremost is that taxation was compulsory and each individual was required to contribute to the state revenue or render service in lieu of taxes in proportion to his ability. This compares to some extent with the first canon of Adam Smith, i.e. “the subjects of every state ought to contribute towards the support of the government as nearly as possible, in the proportion to their respective abilities; that is in proportion to the revenue which they respectively enjoy under the protection of the state”48.However, there is a little difference between the principle of taxation of Adam Smith and that advocated by the Hindu law-givers. According to Adam smith, if a person does not earn anything, he is not required to pay any tax but in the fiscal system of ancient India even a smallest income was to be taxed and even if a person did not earn anything, he was required to contribute to the state in the form of labour49. Nevertheless, instances of social order and individual status of a person playing role in the system of taxation in ancient India are also not wanting. During the Vedic time and even later, people belonging to Bramhmana class have been found asserting that since they were engaged in unproductive vocation like imparting education and performing religious rituals, they should not be asked to pay taxes like others. Kautilya in his Arthashastra further elaborates the element of certainty in Hindu tax – system. According to him the taxes had to be certain and made known to the tax payers, the amount of tax, articles to be taxed and the time to pay otherwise the tax collectors could realise more than what is prescribed and appropriate a part of collection for their own benefit.50. Kautilya has gone to the extent of prescribing punishment to such erring officials51. This maxim of certainty in the Hindu fiscal thoughts appears close to the second canon of Adam Smith, i.e. “the tax which each individual is bound to pay ought to be certain and not arbitrary. The time of payment, the manner of payment, the quality to be paid, ought all to be clear and plain to the contributor and to every other person”52.
The next emphasis, the Hindu canons lay on, is that taxes should be collected at a time and place most suited for the tax payers. Most of the analogies relating to taxes and which have been discussed above do focus on the element of convenience. This maxim is very akin to Adam Smith’s third canon, i.e. “every tax ought to be levied at the time and manner which is most likely to be convenient for the contributor to pay it”53.
The next maxim of Hindu taxation emphasises that a reasonable margin should always be left with the state exchequer after meeting the cost of tax collection. It appears that Kautilya was well seized of the reality and accordingly shaped his fiscal policy during the Mauryan period of Indian history. He advises the king in his Arthashastra to appoint trustworthy tax officials for collection purposes. He has gone to the extent of prescribing punishment to those tax collectors who were found indulged in siphoning state revenue54. This element of certainty in Hindu tax system compares to great extent with Adam Smith’s fourth and the last canon of taxation: “every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the state”55. The other aspect of the principle of economy, i.e. ‘production and consumption should not be hampered’, seems to be the guiding factor to Hindu thinkers on fiscal thoughts56.
Undoubtedly, the system of taxation as advocated by the Hindu thinkers is full of eloquent metaphors and similes. Let us pause for a while and examine, if the canons of taxation were in effect, in reality, as eloquent as they have been made in the scriptures? Can there be any comparison drawn with the modern theory of taxation? The fact is that there cannot be a rigid and accurate comparison of the Hindu canons. Only inferences to the extent of gist can be observed in almost all the sacred sayings of the Hindu law-givers. Thus, Mahabharata prescribes heavy taxation on the rich who enjoys maximum protection of the state57. This, however, meets to some extent Adam Smith’s first canon, i.e. ‘ability to pay tax’ but not the theory of progression. Some scholars find in Manu (ancient law-giver) that taxes were levied on income and not on capital and this they compare with the doctrine of progressive taxation58. But taxing income does not necessarily amount to increasing rate of taxes with the increase in income. However, the nearest similarity with the progressive taxation is seen in Medhatithi on Manu VII-128 who, in his commentary, states that there is no rule for fixing the taxes in the case of merchants’ profits and that where the profits are large, a higher rate may be applied59.
Sometimes, despite the canons of taxation sounding very high, quite opposites also happened and people suffered due to arbitrary and oppressive taxes. Jatakas and other sources of information like inscriptions and literary texts of the time shed light on how the subjects fled from their home to escape from tax collectors. However, this aspect of taxation, i.e. oppressive taxation, is out of the ambit of the present research paper and is proposed to be dealt in other article. For the present, it is suffice to conclude that the guiding principle before the fiscal thinkers in ancient India was that “it is not the heavily taxed realm which executes great deeds but the moderately taxed one”60. Though the Hindu canons are embedded with beautiful metaphors and similes and carried with them high ambitions and pious plans but in effect they were more in the nature of holy precepts than actually followed by the sovereign in his realm. In view of the real position and pious thoughts found moving not always together it is difficult to agree with those scholars who hold that “Hindu theory avoided the vulgar fallacy which looks upon taxation”61. Nevertheless the possibility of curbing such a tendency is not at all ruled out.
To sum up, the principles of taxation mentioned in the ancient Hindu texts do not necessarily deal with the tax policy of the governments of the time nor did the state treat them as must considerations in evolving its fiscal policy. The canons of taxation, variously expressed and advocated in the sacred texts are indeed one and the same. They are simply a modification of one and other and move round the only theme i.e. the king should not resort to arbitrary and oppressive taxes. Most of the canons are applicable only in the work of collection and not in the decision of making a policy.
- Rigveda (Rv).III.43.5; V54; Atharvaveda (Av) IV.22.3. 8; VIII 7.16.
- Shatapatha Brahmana (Sat. Br,) V3.3.12.; XIII.4.4.29; V. 4.2.3
- Hindu Polity – pp 319 ff.
- PAAI. (Public Administration in Ancient India). P.180
- Manu Smriti (Manu). VII.137-138; Gautam Smriti (Gaut.) X.31,34; Vishnu Smriti (Vishnu) III.32; Shukra Smriti (Shukra). IV.2,121.
- Arthashastra (Arth.), Bk.II. ch.7.
- Shakuntalam p.76; Raghuvamsha V. 8
- Lakshmidhara, p55; pp91-92
- Mahabharata (Mbh.). XII. 71. 10
- Vashishta (Vas) I. 42
- Manu. VII. 80; X. 119
- Apastamba. II. 10. 26. 9.
- Hindu Polity. pp. 319 ff.
- AIPTI (Ancient Indian Political Thoughts and Institutions). Pp. 171 ff
- PAAI.. P 180
- Manu. VII. 128; Mbh. XII. 87. 170-180.
- Manu. VII. 129.
- Kulluk on Manu. VII. 129-130.
- AIPTI. Pp. 171 ff..
- Arth. Bk. V. Ch.II.
- Manu. VII. 139.
- Manu. VII. 170-171.
- Arth. Bk. II. Ch. I.; Mbh. XII. 87. 18.
- Mbh. (Udyogaparva). 34. 17-18.
- Mbh.XII. 88. 4-6
- Mbh. XII. 87. 20-22.
- Mbh. XII. 71. 16-19.
- Shubhashitaratnagar. Ch. III. 4. 406; Kalidasa’s Raghuvamsha. I. 26.
- Panchatantra (Panch.). I. 243.
- Kamandaka. V. 87.
- The Jatakas (Buddhist texts)., Rajatarangini and some other historical rcords are full of such references which mention the oppressive taxes and plight of the people.
- ,35.History of Dharmashastras by P.V. Kane. III. P. 184; Dhammapada.49; Divyavadana. Pp562-563.
36 Purram.. 184, 197.
37 Kural. 552.
38 South Indian Polity (T.V. Mahalingam) ; History of Tamil Literature. (V.R.P. Dikshitar).
39 Arth. Bk. V. 11; IV. 9.; cf. Shantiparva.88. 26; 130.26-27.
40 Kamandaka. VI. 14; V. 84.
41 Mbh. XII. 87. 13-14.; cf. Shukra. IV. 2, 214-215.
42 Manu. VII. 127; cf. Agnipurana. Ch. 223.14.
43 Hindu Revenue System (HRS). p. 19.
44 HRS. p19.
45 Lakshmidhara. (Intro.). pp. 55 cf.
46 Arth. Bk. II. Ch. 12; cf. Shukra. II. 345-346; 351-352.
47 Mbh. XII. 87.15.
48 Wealth of Nations quoted in Enclopaedia Britannica.
49 Manu. VII. 137-138; Gaut. X. 31-34; Vishnu. III. 32. 1.; Shukra. IV. 2. 121.
50 Arth. Bk. II. Ch. 8.
51 Art. Bk. II. Ch. 9.
52 Wealth of Nations.
53 Wealth of nations.
54 Arth. Bk. II. Ch.8, Ch. 9
55 Wealth of Nations
56 Arth. Bk. II. Ch.8; Kamandaka. V. 8; 77-78; IV. 7. 48; Shukra. II. 345-346;351-352.
57 Mbh. XII. 129
58 Introduction to Public Finanace. P4.
59 Quoted in HRS. p. 23.
60 Mbh. XII. 41.22.
61 Hindu Revenue System.