52) Celebrating 150 years of “Building India”/ existence of the Income Tax Department of India :

52) Celebrating 150 years of “Building India”/ existence of the Income Tax Department of India :

A brief history of Income Tax:

Income Tax has been levied in some form or the other even in Primitive Tribal communities. Several centuries ago, it was common practice to let the buyer/seller pay in some kind on the purchase or sale of goods and merchandise or livestock to the King or Governing Authority in some arbitrary form of assessment or the other. 

In fact the term “Tax” is derived from the word “Taxation” which means “an estimate”, which gave the then Tax collectors powers to arbitrarily estimate the State or Community dues from the individual. Punishments for not paying taxes could be confiscation of properties or even physical/corporal punishment.

One of the first few wide-spread  and formal systems of Taxation were prevalent in Greece, Germany and the Roman Empire, where taxes were levied on sales/purchases and properties ,incomes from occupations of citizens of both Rome,  as well as Occupied Territories. These taxes went a long way in meeting the civil and military/occupation forces expenditure like , administration of justice and infrastructure (roads, schools, public places etc.) and other State functions. Custom duties were also levied as ‘duties’ on goods and items both produced within the State/city or exported outside.

 Some recorded International attempts at imposing Income tax over the centuries which met with resentment:

Augustus Ceaser is said to have issued a decree to the effect that “the entire World” (or at least that governed by him) should be taxed which led to wide-spread resentment in Roman Empire -occupied territories.

In 10CE, the Chinese Emperor Wang Mang of the Xin (Han) Dynasty imposed income tax at 10% of profits for Professional and skilled labour. His action was thoroughly unpopular and he was overthrown about a decade later primarily on this account.

In Britain, William Pitt, the Younger, in 1798 levied an income tax for military preparations against Napoleon, the Emperor of France. Against an estimate of GBP 10 million, he managed to collect GBP 6 million. The tax proved to be very unpopular and had to be repealed in 1816 and copies its records publicly burnt by the Chancellor of the Exchequer to allay the public’s resentment.

To pay for the American Civil war effort, the US Government imposed a personal income tax in 1861 (3% of all incomes over US $800). This Act, too, was very unpopular and was repealed in 1862, but the Government brought in another series of Income tax.

In India, we are having an “Educational Cess” charged at 3% on payable income tax calculated on aggregate personal incomes in a financial year and several other categories of income. (Although, we do not see much improvement in the number of “literate” citizens in India, nevertheless, I will refrain from commenting on this “tax”, lest, my comment should fall on the wrong side of the I.T. Authorities. (:-)

 Manu, the ancient Indian sage and Law-maker:

In India, too, the system of Taxation finds a mention in the “Manu Smriti” (Sage Manu’s Doctrine) and “Arthshastra” (Economic Science) , which stated that the King could levy taxes according to the Shastras (oral or written texts/doctrines). He was however, in favour of judicious taxation, so that the citizens paying taxes did not feel the burden of taxation unbearable.

 The taxes proposed by Manu were 20% of profits for artisans and traders progressively reducing to 10% in the case of Agriculturists.  The method of paying taxes in the ancient India was also very interesting.  Taxes were paid in gold coins, cattle, food-grains, raw materials and by rendering personal service to the State.

(Indeed, the present policies of the Government of India are more or less in tune with these recommendations of sage Manu several centuries ago.  Today, upto Rs.10.00 lacs all income earners are taxed at 10% approx., with Agricultural income and several different categories enjoying substantial exemptions).

Chanakya (or Kautilya or Vishnu Gupta):

 Chanakya (370-283 BCE) was the teacher of Chandragupta Maurya, the first Emperor in Indian recorded history to rule the complete Indian sub-continent. Chanakya is also known as “Kautilya” or “Vishnugupta”.Two voluminous/exhaustive  compilations are attributed to him in managing the affairs of the Mauryan Kingdom viz., the “Arthshastra” and the “Neetishastra”. While the Arthshastra discusses the monetary and fiscal policies, inter alia, welfare, international relations and war strategies and levies in detail, the Neetishastra is a treatise on the “ideal way of life” both for citizens and Kings (including the dos and don’ts of running a kingdom/State). A famous quote which is attributed to Chanakya is “Ideally, Governments/States/Kings should collect taxes like a honey-bee which sucks the right amount of nectar from the flower, so that both the bee and the flower can survive”.

Kautilya’s Arthshastra, written at the height of the Mauryan Empire, is a well founded treatise dealing with the system of Taxation. A few examples of his work would be of interest.

For example, he suggested that if the King/State failed to implement judicious taxation on the citizens, they (the citizens) had the right to stop paying taxes and to even demand refund of the taxes paid. (I wonder whether this is possible to follow in the present day though!!).

Further, he suggested that the King/State should collect a part of the Agricultural produce, say 1/6^th as tax and also levy water taxes, octroi duties, toll and custom duties etc. He also included items like forest produce and Salt for taxation purposes. (In keeping with his “honey-bee and lotus flower” policy)

Foreign goods imported from other countries like China, Ceylon (present day Sri Lanka) were subjected to an import levy called “Vartanam”. Also, the importing businessman paid another levy called “Dvarodaya”.  His discussions on rates of taxation, personal income tax, Profit tax, Sales Tax, Gambling tax, liquor tax, Property tax, pilgrimage tax (yatravetana) etc. are very detailed and comprehensive.

Certain exemptions from taxes were granted to several items like – items purchased for marriages, sacrificial ceremonies and special kind of gifts. He laid down that during war or emergencies like famines or floods, taxation would be more stringent and the King could also raise war loans and increase land revenue.

Chanakya’s relevance – Present day

Indian Authorities/historians hold that Kautilya’s Arthshastra was the first Authoritative text on public finance, administration and fiscal laws in India. Chanakya is considered to be the pioneer of the field of Economics and Political Science and his works are taken as precursors to Classical Economics. Europe and the West refer to him as the “Hindu Machiavelli” although Chanakya’s works predate Machiavelli’s by over 1800 years. It would, therefore, be more appropriate to call Machiavelli “The Western Chanakya”.

Historical development of Modern Day taxation in India

·         In 1860, the first Income Tax Act for the first time was enforced by the British India Government for a period of five years and the Act lapsed /became redundant in 1865 and was formally abolished in 1873. The Act was primarily meant to recover the British Government’s military expenses incurred during India’s First War of Independence fought in 1857.

·         However, in 1877, the Government re-introduced  Income Tax primarily on account of the Great Famine of 1876.

·         In 1886, an improved version of the earlier Act was enacted. This Act defined Agricultural income and granted exemption to income from Agriculture for the first time, which exemption in various forms has continued till the present day.

·         In 1918, another Act was put in place which was quite comprehensive and recast the entire tax laws, covering areas like aggregation of income from various sources for the determination of the Rate-slab, classification of income under 6 heads and covering all incomes which were generated within India or were received in India from any source in British India.

·         In 1922, an Act termed as Act VII came into force on the recommendations of the All India Income Tax Committee which is considered a milestone in the evolution of Direct Tax Rules in India. The salient feature of this Act was that it shifted the administration of Income Tax from the State/Provincial Governments to the Central Government. This Act also left the “Rates of Taxation” to be announced by the Finance Acts every year, a provision which has survived to the present day.

·         In 1961, (the first time since Indian Independence) the Act of 1922 was modified, based on the recommendations of a Commission set up in 1956, which recast the Taxation structure on logical lines without changing the basic frame-work.The basic provisions contained in this Act are followed to the present Day.

·         With various policy reforms, the stress of the Income Tax Authority is on lowering of tax rates, simplifying the tax laws and widening the Tax base.

·         The Administrative reforms have included - introduction of PAN /TAN numbers for easier identification of tax payers, work on a Unique Identification number (UID) to tax-payers and computerization of all tax related work. Today with the Income Tax returns being filed online and Tax refunds coming directly to Individual’s accounts, the Tax administration is striving to achieve optimum levels of efficiency in Tax collection and eligible refunds and service to tax-payers.

Commemorative coin issues by RBI:

To commemorate the 150^th Anniversary of the existence of the Income Tax Department/ infrastructure in India  and its contribution to the development of India,the Reserve Bank of India has brought out a Commemorative coin in the denomination of five rupees for general circulation.

The obverse of the coin shows the Lion Capital of the Asoka Pillar with the legend “Satyameva Jayate “(Truth Always Prevails ) inscribed below it. On the left flank are the words” Bharat” and “Rupiye” in Hindi and on the right flank are the words “India” and “Rupees”. Below the Lion Capital is the denomination of the coin “5” in International numeral.

 The reverse of the coin has an image of Chanakya, with his name spelt out in Hindi and English, below his portrait. To the left of his portrait is a Lotus flower with a honey bee sipping nectar from it in keeping with his famous quote mentioned above on the section on Chanakya in this post . On the periphery are the words” Aaykar – Bharat Nirman Ke 150 Varsh” in Hindi and “Income Tax – 150 years of building India” in English. The years of existence of the Modern Income Tax institutions in India 1850-2010 are mentioned at the bottom of the coin. This coin is issued at the Mumbai mint. Notice the “diamond” mint mark over the I.T. years.  (Issued in 2011?)

The shape of this coin is circular and outer diameter is 23mm. The number of serrations on the side are 100 and metal composition is (Nickel Brass – Copper 75%, Zinc 20% and Nickel 5%).

In addition, Commemorative coin sets (both Proof and Uncirculated) were released by the RBI in March 2011 in the denomination of Rs.150/- (Quaternary Alloy – 50 % silver and three other metals, having an outer diameter of 44 mm) and Rs.5/- (Cupro-nickel) which looks like the above coin.

Posted on 03.07.2012:

Yesterday, the Proof set of coins which I had booked with the Kolkata Mint have been delivered to me within four months of Booking – a marked improvement over the harrowing experience mentioned in my Post “The strange Case of the missing Test coins” . Please click on the undernoted Link to view this Post:  

http://exclusivecoins.blogspot.in/2011/09/strange-case-of-missing-test-coins-bad.html                          

The two commemorative coins are contained in a beautiful coin album mentioning” Aaykar – Bharat Nirman Ke 150 Varsh” in Hindi and “Income Tax – 150 years of building India” in English  and showing an image of Chanakya, with his name spelt out in Hindi and English, below his portrait. To the left of his portrait is a Lotus flower with a honey bee sipping nectar.

The back of the album shows a picture of the Kolkata Mint.

The image given below is that of the reverse of the two coins, both Rs.150/- rupees denomination and Rs.5/- denomination contained in the album:

An image of the obverse of the two coins showing their denominatons as Rs.150/- and Rs.5/- respectively:

The specifications of these coins are as under:

Rs.150/- coin:

Shape: Circular; Size: 44 mm; No. of serrations: 200; Weight: 35 gms;

Metal Composition: Quaternary Alloy (Silver – 50%, Copper – 40%, Nickel – 5%, Zinc – 5%).

Rs.5/- coin:

Shape: Circular; Size:23 mm; No. of serrations: 100; Weight: 6.00 gms;

Metal Composition: Nickel Brass (Copper – 75%, Zinc – 20%).Nickel – 5%)