Taxing Times

Come March and in many parts of the world, it is time to pay taxes, as the financial year draws to a  close at the end of March.

Despite the calendar year running from January to December, the financial year in many countries still runs from April to March of the next year. This could be because, for most civilizations, world over, the calendar year too used to start from April as that was the time for Spring or Vernal Equinox.

 Things changed when the calendar introduced by Pope Gregory, with January as the starting month was compulsorily made the calendar in most parts of the world. The rest of the world had to soon, catch up, to keep up the same notion of time.

 For some reason though, many nations seem to have not changed the notion of their financial year. India is one of them.

 Whatever the reason may be and whatever may the last month of the year be, the last month of the year, is still the time to close accounts and pay necessary taxes.

 Were there taxes in the ancient days?

 What was the taxation model in India in earlier days?

 How had India taxed herself through the ages?

 The recordings by the British, of India, before their take over gives us insight into the philosophy of taxation of the land.

 One classic case is the recording by British Judge Lemaistre in 1775 about how the Ryots, farmers kept their accounts.

  “The Ryot kept his accounts in columns in this manner.


  An Indian peasant’s track of taxes paid

  Where arises this mode of keeping his accounts? Evidently upon this principle of natural justice that he feels.”

 He further goes to record the Indian peasant as saying,

 “These new importations have been lain upon me oppressively, at the will and pleasure of the ruling power; a time may come of law, justice and humanity; I will be able to show what was the original payments which I admit to be due from time immemorial. I will keep every imposition separate and distinct, together with the pretext upon which it was raised; that, when the time of justice and humanity shall come, there may be materials upon which it may be decided whether I have been rightfully burdened or not.”

   Indian peasants waiting

Indian peasants waiting for justice and humanity to prevail

Judge Lemaistre has noted with amazement, an ordinary hapless Indian peasant’s memory and account keeping. How he has kept track of the natural justice denied to him, by a series of ruthless alien rulers of the land. How he has clung on, to the memory of fair times. How those fair times were the norm of the land from time immemorial.

 This record of the East India Company gives us useful insights from multiple perspectives.

 One that is relevant here, is the fact that the rate of tax was 5%, which the producer felt duty bound to pay, to keep the administrative machinery in a healthy state.

 The other is that, this low tax rate was the norm of the land, in line with the concept of natural justice as considered by the people, through the ages.

 From the records of the British before they took over the governance of India, we also get a picture of an India where every village was flourishing and the farmers were wealthy.

 It implies that the taxes collected were sufficient. Their mode of application productive.

 How could this have been possible with low tax rates? What was the secret?

 In conjunction with the observation of Judge Lemaistre, let us look at the remarks of the District Collector of Murshidabad, G.G. Ducarel, Supervisor, Purnea, to the Controlling Council in Murshidabad, in the then Bengal province, on 13th December 1770 –


An old painting of Murshidabad

“The country has been less flourishing in our time than heretofore – the primary reason is the difference of revenue paid. I cannot find on examining the records, that except for two years during Cossim Ally’s time, this country ever remitted to the city, more than 4 or 5 Lacs of Rupees, annual revenue.

 What was collected here was spent here.”

 From these observations of Judge Lemaistre and G.G.Ducarel, it comes to knowledge that

  1. The taxes were low, at 5% of produce, as a norm in India from time immemorial

  2. These taxes were collected locally and spent locally.

 Only a portion of the taxes collected, was remitted to the king’s coffers.

 The rest was spent, where it was collected itself, by the people who had collected it – i.e. the locals who knew their local needs better, to plan and monitor the deployment of the funds. After all, it was their funds, their plan, their need, their usage.

 This economic model cut down the expenses involved in

  • taking the monies all the way to the top of the chain through collection channels,

  • planning for its spending at a remote centre at the top

  • again disbursing the money all the way down, through different disbursement channels, back to the same communities from whom the monies had been collected in the first place,

all of which, not only takes time and effort but also costs in the form of administrative costs for the multiple layers needed for transmitting the monies and needless to say, also increases the avenues for misappropriation, which we have seen on the rise since the last 60 years.

 When we avoid all these and localize collection and expenditure for local needs, the rate of taxation can also proportionately come down.

 When rate of taxation comes down, there is better tax compliance.

 When there is better tax compliance, there is obviously more widespread tax contribution.

 When there is more wide spread tax contribution, there are more monies available to be spent for upgrading the local infrastructure.

 When this model was followed in medieval and ancient times of India, the people for whom these infrastructure projects were meant, became the local supervisors of the projects, which ensured quality and timely completion.

 The land was thus prosperous as it had created the right platform for generation of wealth, application of wealth and regeneration of wealth. In short, better management of wealth.

 Today, since the % of taxes are high and people do not see the benefit or returns for it, there is a common feeling of revolt in the people and they get a vicarious pleasure in evading taxes. This high tax regime, which is against the ethos of the land, is actually encouraging people to be dishonest at various levels.

 To ensure better compliance to paying taxes, the amount of administrative effort and controls required also end up making the tax collection process itself very costly and hence the need for more taxes, to administer better.

 This is becoming a vicious cycle.

 We have discussed all this in great detail, in our book You Turn India. 


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