Way back, in the year 1789, Benjamin Franklin wrote, “In this world, nothing can be said to be certain except Death and Taxes.”
Reading that made me wonder – when did taxes really originate? And why do we pay taxes at all?
History of Taxes in India
Believe it or not, in India, we have evidence of taxes from not just 200, but over ~2000 years ago. This was when the Maurya Empire was at the helm. Taxes have been part of our civilization for a long, long time.
Early kings used to tax their subjects in order to provide them with protection, better infrastructure, and an improved standard of living. They would collect tax in the form of gold-coins, cattle, grains, raw materials, and also by rendering personal services.
In India, two literary works, Manu Smriti and Arthashastra, mention these taxes in quite a detailed manner.
Manu Smriti
Manu, considered as the first man in Hindu mythology, wrote Manu Smriti (Laws of Manu) which is the Hindu Code of Law. This text is a compilation of all secular and religious laws, including the subject of taxes.
According to him, a king may levy taxes on his subjects. However, he should do so in such a manner that the subjects do not feel the pinch of paying taxes. Much like our present-day tax system, Manu even specified different tax rates for different professions and income-levels.
Arthasastra
Another notable text, the Arthasastra by Kautilya (also known as Chanakya), deals with the system of taxation in an elaborate and well-planned way. This was written sometime in 300 B.C., when the Maurya Empire was on its glorious rise to power. The State not only collected income tax but also levied water rates, octroi duties, tolls, and customs duties. Imagine bullock carts having to pay toll fees!
So clearly, taxes are not a recent phenomenon. It is remarkable that the present-day tax system is in many ways similar to the system of taxation in vogue about 2300 years ago. For eons, countries and states have run their operations with money collected from taxpayers. Even in recent times, the government’s primary source of revenue is the taxes we pay in the form of direct and indirect tax.
What’s the difference between direct and indirect taxes?
Direct tax is the tax we, as individuals, directly pay to the government based on our income (like income tax) and our assets (like property tax).
Indirect tax is levied on the manufacture or sale of goods and services. End users, like you and me, pay this tax indirectly, through the seller or service provider. For example, when you buy a mobile phone, you pay the seller a certain amount of GST (Goods and Service Tax). The seller in turn pays this amount to the Government at regular intervals. Excise duty is another example of an indirect tax.
The revenue from these taxes is used to fund essential expenses – defence, police, judiciary, public health, infrastructure, providing free education, subsidized ration, and the list goes on. Every year, the budget declares the quantum to be utilised for each of these categories.
In Recent Times
Over the last 160 years, the Indian Taxation system has evolved quite rapidly. While I won’t go into detail about the evolution of all types of tax systems and departments, I would like to highlight the evolution of income tax over the years.
Following the First War of Independence in 1857, the British government was in dire need of funds. This necessity led to the introduction of the first Income Tax Act in the year 1860. With this, British-India got it’s first ever Finance Minister in James Wilson, who was also the founder of The Economist. Although Wilson passed away the very same year that the Act was passed, income tax laws live on, albeit with multiple amendments and reenactments.
The Income Tax Act, 1961
The Act we refer to today was passed nearly 60 years ago, re-structured after the World Wars and Indian Independence. There have since been innumerable developments, changes, and upgrades to this Act as well.
With a combined experience of over seventeen years of dealing with the Income Tax Department specifically, Komal and I have some encouraging observations to share.
Our experience with the Income Tax Offices
Komal remembers the time when she’d just started interning at a Chartered Accountancy firm in Pune. She recalls having to fill out a number of physical forms and taking a bunch of print outs that needed to be signed by clients. Back then, you had to make a trip all the way to that government office, wait in line to submit the documents, then get it stamped by an official, signifying that the process was over from your end. If you had to resolve any issues or check on the refund not credited to your account, it would take months, if not years.
These papers were nothing but the Income Tax returns that we file online today, from the comfort of our homes. And taxpayers get their refunds within two months, sometimes even within two weeks!
Going online
Over the last 10 years, especially, the Indian Income Tax Department, headed by the Central Board of Direct Taxes, has completely transformed itself from offline modes of data collection and communication to online modes.
In 2009, the Centralised Processing Centre, aka CPC, was set up in Bangalore under the umbrella of Infosys. While the switch to a computerized environment initially started out for processing income tax returns, it went on to automate all its communication, redressal and a lot more. Witnessing this government body driving innovation to increase efficiency and transparency is something that we’re extremely proud of.
Despite the drawbacks and hiccups we may encounter once in a while, when I look back and think about how taxes have evolved over the decades and centuries, the transformation leaves me feeling inspired. We’ve done so much as a nation, collectively, but there’s still a lot more we can do.
