Thoughts On Taxes And Governance!

"Accordingly to (Kautilya) tax was not a compulsory contribution to be made by the subject to the State but the relationship was based on Dharma (religion) 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. During Mauryan period revenues were collected from all possible sources, however 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 building of roads, setting up of educational institutions, setting up of new villages and such other activities beneficial to the community. The overall emphasis was on equity and justice in taxation. The affluent had to pay higher taxes as compared to the not so fortunate."

The above passage is an extract from the memorandum made by the IRS (C& CE) Officers' Association to the Sixth Pay Commission, in which it seeks to demonstrate the importance and beneficence of taxation, presumably in order to persuade the Commission to be generous to the tax collectors. However in modern jurisprudence tax is considered a compulsory extraction, for which there is nothing to be given in return. This view is in keeping with the general conservatism of courts as regards taxes, for this is a core area of sovereignty of the state.

In fact in England, the birthplace of modern Parliamentary democracy, the historical tussle between the King and Parliament was centred around the power to levy taxes, which royalty gave up only reluctantly and none too graciously. Parliamentary democracy grew in England to the accompaniment of the slogan 'No Taxation without Representation'. Charles I was executed in the seventeenth century largely because of resentment caused by his tendency to levy rapacious taxes (e.g., the infamous 'ship tax') without the consent of Parliament. Resistance in the American colonies, and the final war for independence, used the same idiom to garner popular support. The Stamp Act of 1765 had to be repealed in 1766 in the wake of bloody riots against it. The tax on tea led to the Boston Tea Party of 1773. The levies were consistently opposed on the grounds of lack of representative democracy in governance.

Closer home, in India Mahatma Gandhi used the same method with telling effectiveness in his Salt Satyagraha and the no-tax campaigns in various parts of the country. It was an idiom that went home to the people, especially when he chose the issue of salt. And, it was an ironic comment on the British, given the history of their parliamentary democracy!

Though tax is supposed to be a compulsory extraction, without any reciprocal obligation on the part of the state, we yet celebrate the no-tax campaigns of freedom struggles, implicitly acknowledging democratic legitimacy to be a precondition of taxation; we also celebrate other campaigns, like the Swadeshi campaign, against anti-people actions of the colonial government. It seems that we intuitively feel, despite the pronouncements of jurists on the nature of tax, that if a government does not act in the interests of the people this erodes the moral right of that government to levy tax. Our political leadership needs to reflect upon this as we approach the sixtieth anniversary of independent India. (Incidentally this was sadly trivialized by a political leader a few years back by asking weavers to start a no-tax campaign against the levy of excise duty on readymade garments. See report captioned Launch 'no tax campaign' Prakash tells weavers in The Hindu on 24 April 2003.)

In the context of the link between taxation and governance I must mention a board that I saw at the scene of road repairs in Varanasi many years ago, evidently the idea of an officer with some imagination and enthusiasm, bearing the legend 'Your taxes at your service', in Hindi and English. It is the only governmental attempt that I have come across in India (though reportedly common in other countries) to justify payment of taxes by pointing to provision of infrastructure or services by the government. This too confirms the correlation that we intuitively seem to make, with sound historical basis, between taxation and the obligations of governance. History bears out, as we have seen above, the need for perceived legitimacy of the levy. This extends to the expenditure of the revenue raised.

Rajiv Gandhi's unforgettable statistic still haunts public life: the prime minister publicly admitted that of every rupee of government spending, only fifteen paise actually reaches the beneficiary. Much of public grumbling about taxes is explicitly related to leakage of government funds. A senior official of a revenue department of the central government, who by virtue of having functioned in the vigilance wing of his department has seen corruption close-up, feels that the citizen should have the option of withholding taxes from the government to introduce some measure of accountability. He suggests something like an escrow account administered jointly by citizens and government officials, including the CAG, which will release funds to the government only when certain milestones of infrastructural works are completed or certain parameters of functioning are met. (Expressing these ideas in private conversation he hastened to suggest that I should present the idea as my own, as he is still in service and I have freed myself from the yoke! I have tried to compromise.) Perhaps public-minded netizens would like to work out the details of such a scheme.

One more notion. We are perhaps too far gone to suggest rolling back the state, in an era where the state takes on more and more responsibilities in the name of the welfare of the people. But it may be instructive ponder upon (while we smile at it) the incident narrated in Irwin Stelzer's Annual London Lecture of 2006 at the Town Hall, London, in which he tells of a millionaire who demanded of his MP, "How are you going to take care of my old mother?" and nobody felt that there was any absurdity in this. (See www.stelzerassoc.com) In India there is a growing tendency of the state to intervene in private life: witness the enactments in the context of domestic violence, care of parents, and now a proposed elaborate set-up to ensure the safety and welfare of children. Any state intervention costs money, and taxes are the way the government raises money. Do we want this? Do we even like the way in which governmental interventions work? Is a law the answer to every problem? Or do we want to bring justice and decency to our personal lives by other means? Maybe we could think on this too, in this milestone anniversary year.