History Of Taxation

Members of the primitive communities used to render voluntary services for the support of Government.  Later on, revenues such as “tributes” earnings of mines and other enterprises were earmarked for maintenance of State, as was the practice In Athens.  Ancient States considered taxation as a minor source of revenue, levied mainly on property, inheritance and commodities.  “The small size of expenditure of ancient states did not require extensive systems of taxation”.

According to Prof. Plehn, the origin of tax system of modern states is found in “Feudal practices”.  After the fall of Rome, rulers were supported by their own lands and compulsory dues from their subjects.  Before the advent of money, feudal market dues, tolls for protection and use of roads, bridges and ferries, land rent and other payments were in goods or kind.  With the rise of money economy, all such payments were gradually commuted into money payments or Taxes.  Kings started preferring payments in money and the subjects also preferred to pay money rather than goods or services.

With the Industrial revolution, new forms of wealth arose.  New industries were started.  Land tax, excise, customs duties, market tax, toll taxes on personal goods and other taxes were imposed by the states.  Thus, the old Feudal revenue system gradually changed to give way to taxation.  The growing needs of modern states and increasing public expenditure have made new sources of revenues essential.  They were found in imposing taxes upon new business activities, articles of consumption and properties.  In the 19^th and 20^th centuries, income tax and inheritance tax have gained prominence with the World War I which imposed heavy financial burden on most of the states, new general sales taxes and capital levies were devised for additional revenues.

Changing economic, political and social conditions have led to the process of reconstruction in ‘Fiscal Systems’.  In the second half of 20^th century, Governmental outlay on social sectors like public health, education, water supply support to weaker sections and other infrastructural needs have made all governments to look for various sources of revenues.  Naturally, taxation has become the biggest and the principal sources of revenue to raise the colossal sums needed by the modern Governments.  Various types of taxes like direct and indirect taxes on individuals, goods and services are levied to raise the needed resources.  In fact every citizen of a country, rich or poor, pays taxes in some form or the other.

According to Charles. M. Allan gives a definition which is more relevant to Fiscal economies.  According to him, “A Tax is any leakage from the circular flow of income into the public sector, excepting loan transactions and direct payments for publicly produced goods and services upto the cost of producing these goods and services.