Tax And Revenue in Ancient India


“It was only for the good of his subjects that he collected taxes from them, just as the Sun draws moisture from the Earth to give it back a thousand-fold” — Kalidas in Raghuvansh eulogizing King Dalip.

In the current scenario where the world has found itself caught up in One-Two punched situation where on one side there is a health crisis in the form of COVID-19 and at the other side the economic crisis created due to the lockdowns imposed as a measure to give a decent breathing space to the health infrastructure of the nations.

This crisis much like many other crises in the past like the World Wars, The Spanish Flu, The Great Depression, etc has pushed the thinktanks globally to rethink and make reforms to the existing systems to fill the existing gaps. But the uniqueness of this crisis is that it is such a situation where there is a scene of lack of demand as well as Reduced supply of goods because of reduced production due to unavoidable consequences of a large Pandemic that had never occurred in last 100 years.

In a famous interview show “Off The Cuff” the Chief Economic Advisor of India Krishnamurthy Subramanian had stated “The Global Crisis that the world is witnessing right now hasn’t been witnessed by anyone of us(The modern Economists) in their lifetime. So it is a time to think out of the box and also a time when one should go to the past and trace the situations that had had a similar impact over the global economy and engineer the new system”

In 2007 Angus Maddinson “ India has been the dominant economic superpower for three-fourth of the known economic history”. Hence it is necessary to discuss the tax and revenue model of the super-economic-power for three-fourth of economic historyThe Ancient India.

The Ancient Indian Way:

Manu, the Law Giver:

As per “History of taxation in India” in the system of direct and Indirect taxes has been in force in India since ancient times. The texts by Maharishi Manu and Kautilya have a reference to a variety of tax measures. According to Manu the kings could levy taxes on the citizens but cautioned the king against excessive taxation of the citizens. He warned the king against both the possible extreme scenarios i.e. the absence of taxes or excessive taxes.

As per Manu, the king’s tax collection system should be such that the taxpayer doesn’t feel the pinch of paying the tax. He laid down that traders and artisans should pay 1/5th of their profits in silver and gold, while the agriculturists were to pay 1/6th, 1/8th and 1/10th of their produce depending upon their circumstances. taxes were also levied on various classes of people like actors, dancers, singers and even dancing girls. Taxes were paid in the shape of gold-coins, cattle, grains, raw-materials and sometimes by rendering personal service.

·Kautilya’s Arthasastra

However, it is Kautilya’s Arthashastra, which deals with the system of taxation in a really elaborate, and planned manner. This well-known treatise on state crafts written sometime in 300 B.C., when the Mauryan Empire was as its glorious upwards move, is truly amazing, for its deep study of the civilization of that time and the suggestions given which should guide a king in running the State in a most efficient and fruitful manner. A major portion of Arthashastra is devoted by Kautilya to financial matters including financial administration. According to famous statesman, the Mauryan system, so far as it applied to agriculture, was a sort of state landlordism and the collection of land revenue formed an important source of revenue to the State. The State not only collected a part of the agricultural produce which was normally one-sixth but also levied water rates, Octroi duties, tolls and customs duties. Taxes were also collected on forest produce as well as from mining of metals etc. Salt tax was an important source of revenue and it was collected at the place of its extraction.

Kautilya described in detail, the trade and commerce carried on with foreign countries and the active interest of the Mauryan Empire to promote such trade. Goods were imported from China, Ceylon and other countries and levy known as a vartanam was collected on all foreign commodities imported in the country. There was another levy called Dvarodaya which was paid by the concerned businessman for the import of foreign goods. In addition, ferry fees of all kinds were levied to augment the tax collection.

The collection of Income-tax was well organized and it constituted a major part of the revenue of the State. A big portion was collected in the form of income-tax from dancers, musicians, actors and dancing girls, etc. This taxation was not progressive but proportional to the fluctuating income. An excess Profits Tax was also collected. General Sales-tax was also levied on sales and the sale and the purchase of buildings were also subject to tax. Even gambling operations were centralized and tax was collected on these operations. A tax called yatravetana was levied on pilgrims. Though revenues were collected from all possible sources, the underlying philosophy was not to exploit or over-tax people but to provide them as well as to the State and the King, immunity from external and internal danger. The revenues collected in this manner were spent on social services such as laying of roads, setting up of educational institutions, setting up of new villages and such other activities beneficial to the community.

The reason why Kautilya gave so much importance to public finance and the taxation system in the Arthashastra is not far to seek. According to him, the power of the government depended upon the strength of its treasury. He states — “From the treasury, comes the power of the government, and the Earth whose ornament is the treasury, is acquired by means of the Treasury and Army”. However, he regarded revenue and taxes as the earning of the sovereign for the services which were to be rendered by him to the people and to afford them protection and to maintain law and order. Kautilya emphasized that the King was only a trustee of the land and his duty was to protect it and to make it more and more productive so that land revenue could be collected as a principal source of income for the State. According to him, the tax was not a compulsory contribution to be made by the subject to the State but the relationship was based on Dharma(not the idea of Religion but the Idea of Duty) and it was the King’s sacred duty to protect its citizens in view of the tax collected and if the King failed in his duty, the subject had a right to stop paying taxes, and even to demand refund of the taxes paid.

According to the Arthashastra, each tax was specific and there was no scope for arbitrariness. Precision determined the schedule of each payment, and its time, manner and quantity being all pre-determined. The land revenue was fixed at 1/6 share of the production and import and export duties were determined on an ad valorem basisThe import duties on foreign goods were roughly 20 percent of their value. Similarly, tolls, road cess, ferry charges and other levies were all fixed. Kautilya’s concept of taxation is more or less akin to the modern system of taxation. His overall emphasis was on equity and justice in taxation. The affluent had to pay higher taxes as compared to the not so fortunate. People who were suffering from diseases or were minor and students were exempted from tax or given suitable remissions. The revenue collectors maintained up-to-date records of collection and exemptions. The total revenue of the State was collected from a large number of sources as enumerated above. There were also other sources like profits from Stand land (Sita) religious taxes (Bali) and taxes paid in cash (Kara). Vanikpath was the income from roads and traffic paid as tolls. He placed land revenues and taxes on commerce under the head of tax revenues. These were fixed taxes and included half-yearly taxes like Bhadra, Padika, and Vasantika. Custom duties and duties on sales, taxes on trade and professions and direct taxes comprised the taxes on commerce. The non-tax revenues consisted of produce of sown lands, profits acquired from the manufacture of oil, sugarcane and beverage by the State, and other transactions carried on by the State. Commodities utilized on marriage occasions, the articles needed for sacrificial ceremonies and special kinds of gifts were exempted from taxation. All kinds of liquor were subject to a toll of 5 precent. Tax evaders and other offenders were fined to the tune of 600 panas.

Kautilya also laid down that during war or emergencies like famine or floods, etc. the taxation system should be made more stringent and the king could also raise war loans. The land revenue could be raised from 1/6th to 1/4th during emergencies. The people engaged in commerce were to pay big donations to war efforts.

Taking an overall view, it can be said without fear of contradiction that Kautilya’s Arthasastra was the first authoritative text on public finance, administration and the fiscal laws in this country. His concept of tax revenue and the on-tax revenue was a unique contribution in the field of tax administration. It was he, who gave the tax revenues its due importance in the running of the State and its far-reaching contribution to the prosperity and stability of the Empire. It is truly a unique treatise that lays down in precise terms the art of statecraft including economic and financial administration.

What do the historians say?

The learned author K.B.Sarkar commends the system of taxation in ancient India in his book “Public Finance in Ancient India”, (1978 Edition) as follows:-

“Most of the taxes of Ancient India were highly productive. The admixture of direct taxes with indirect Taxes secured elasticity in the tax system, although more emphasis was laid on direct tax. The tax-structure was a broad-based one and covered most people within its fold. The taxes were varied and the large variety of taxes reflected the life of a large and composite population”.

As per the Cambridge Scholar study by Sanjeev Kumar Sharma: Anant Sadashiv Altekar, the famous Indian Historian argues that ‘when the literature on politics properly began to be developed, we find that promotion of Dharma, Artha and Kama is usually mentioned as the aims of the state. The state was to promote Dharma, not by championing any particular sect or religion, but by fostering a feeling of piety and religiousness, by encouraging virtue and morality, by extending help to the establishment belonging to all religious groups and sects, by maintaining free hospitals and feeding houses for the poor and the decrepit, and last but not the least, by extending patronage to literature and science. The promotion of Artha was to be procured by encouraging trade, industry and agriculture, by developing national resources, by bringing fresh land under cultivation, by building dams and canals to make agriculture independent of rain, and by encouraging extensive and systematic working of mines. The state was to promote Kama by ensuring peace and order so that each individual may enjoy life undisturbed, and by offering encouragement of fine arts like music, dancing, painting, sculpture and architecture, in order to promote aesthetic culture. The state was thus expected to maintain peace and order and promote moral, material and aesthetic progress of society. Further to this, Altekar comments that ‘our writers of ancient India have fully recognized the ideal of perfect development of the individual to the development of the society, when they laid down that it was the business of the state to promote Dharma, Artha, Kama, and Moksha, only they have not used the modern terminology. The ideal of sarvabhuthita, which is emphasized in several places, refers not only to spiritual, but also to the mundane sphere. Altekar also finds that ‘ancient Indians permitted the state a wide sphere of activity, not because they did not value individual liberty, but because they felt that the state could organize them best by reconciling conflicting interests if its bureaucracy worked in closer co-operation with well-established popular bodies like the trade guilds and village councils’.

Today’s World

It can be argued that the above-stated models of Ancient India apply to a pre-industrialization era but that would mean a huge misunderstanding of the Indian Texts. The interpreters of the Indian Scriptures have always made sure to mention that the texts must be understood in principle and the adoption in implementation must be circumstances specific like a common saying “Follow the principles, not the rules”. All in all, there should not be an absence of Taxes as Kautilya mentions “The strength of a king lies in his treasury”. But this doesn’t mean that the taxes are so high that they result in the contraction of the wealth of the citizens because of which the state ends up collecting even lesser tax in the long term. In India there in 1973 the highest Income tax rate was 97.25%. This is the time that is believed to have started the culture of black money in the Indian Financial system as stated by the famous journalist Shekhar Gupta in his famous show Cut The Clutter in The Print. Even today in India we have an average Income tax rate of 32.39% which is pretty high as compared to many fast-growing economies. The fall in tax collection with the existing models during the COVID-19 pandemic has been a dangerous sign. At the time when the markets don’t have a good demand, there are possibilities of the government reducing the Direct and Indirect Taxes to keep more cash with the people to enhance the demand. If the tax rates were such that any increase in Tax during emergency situations like this wouldn’t hurt the taxpayer’s savings by a big margin then the governments at the current time could have easily been able to gather the required resources. Economists namely Dr. Ila Patnaik and Dr. Shamika Ravi have regularly stated in recent times that the current rates of taxes have always stopped the businesses from growing to their full potential. This in turn has reduced the collection of taxes in the long run. The collection of tax is not in sync with the rate of growth that the Country expects to achieve through fiscal spending by the Government which has resulted in big fiscal deficit. And this fiscal deficit has tied the hands of the government to implement many welfare schemes including that of health care.


A lower tax rate and a free business ecosystem will ensure a greater tax collection to the state in the long run. This will enable the government to implement high-quality systems for education, health care and more. Today the European Continent has one of the lowest tax rates for both income tax and corporate tax. The Per Capita GDP of all of these nations are amongst the highest in the world. Also, public systems like the health care and education of the continent are amongst the best in the world. And as Kautilya states in Arthashastra “The task of the government is to run public welfare activities like Health Care, Education, etc and not to run businesses” our governments have to learn to do more of governance and less of business.


Anurag Behera
About Anurag Behera 2 Articles
Entrepreneur,Ms. DataSoft Systems. B.Tech from Veer Surendra Sai University of Technology,Burla,Odisha, 2018