Kara Siddhanta is the general theory of taxation in Hindu scriptures like smritis (Manusmriti – Shukraneeti and other similar texts) and epics (Mahabharata and Ramayana). It is also found in the Arthashastra of Chanakya. Taxes in ancient Hindu India was based on this.
Kara Siddhanta theories stipulated that taxation should be reasonable and equitable.
The king should always keep in mind that oppressive taxation invites hatred and wrath of his subjects.
The king, therefore, was advised to collect taxes without causing any suffering to his subjects.
Just as fruits are gathered from a garden as often as they become ripe, so revenue shall be collected as often as it becomes ripe. Collection of revenue or of fruits, when unripe, shall never be carried out, lest the sources be injured, causing immense trouble. (Arthashastra V.2)
Subjects may be taxed in a way that they remain strong enough to bear future burdens and, if necessary, heavier ones.
“If the calf is permitted to suck, it grows strong, O Bharata, and can bear weight and pain. The king, therefore, should collect taxes keeping in mind the fact that over milking weakens the calf and consequently harms the milker himself. (Mahabharata XII.87.20-21.)
One who kills the goat can at best get one meal, one who feeds it can get milk for several years. The ruler is to act like a bee which collects honey without causing pain to the plant (Mahabharata XII.88.7-8)
King that followed Dharma had tax fixed and it was not arbitrary. The time of payment and manner of payment were also fixed.
The criterion of equitable taxation was that the state, on one side, and the agriculturalist or the trader, on the other, should both feel as they have received a fair and reasonable return for their labor (Manusmriti VII 127 and Shukraniti IV 2.19)
Increasing taxes should be done “little by little when in the realms prosperity is increasing.” The process must be mild so that the realm might not turn restive (Mahabharata XII.88.4)
In the case of trade and industry, the taxation should be on net profits and not on gross earnings.
It was recommended that taxes should not be levied without determining the outturn and the amount of labor necessary for its production.
It was to be borne in mind that without proper incentive nobody would engage in industry.
What profit would keep the producer to the production and produce benefit to the king as well should be the ruling consideration in deciding on the amount of taxes to be levied on industries (Manusmriti VII 129. XII 87.16)
An article was to be taxed only once and not twice (Shukraniti IV.2.111)
For taxing imports following things have to be kept in mind – sales, purchases, distance traveled, cost of importing, and the total cost and also the risk incurred by the merchant should be fully considered (Shukraneeti 87.13) Manusmriti (VII.127)
Imports harmful to the kingdom and luxurious or fruitless imports are to be discouraged through taxation. (Arthashastra II.21)
Beneficial imports should be made free of import duties.
Those articles that are rare in the country and those that would be needed for future production should be allowed to enter free of cost.
Certain commodities should not be exported, while their imports should be encouraged by not being taxed at all. They included weapons and armors, metals, military vehicles, rare things, grains and cattle.
The principle of countervailing duty was restored to in certain cases.
Foreign favorites and private manufactures in wine and liquors were taxed on the principle of compensation with reference to the state manufactures.
Additional taxes were to be imposed only times of national calamity after taking steps to explain the situation to the people with a view to ensure a willing response. This was to be adopted only as the exceptional remedy and that too as the last alternative (Mahabharata XII 87.26 – 39 and Shukraneeti IV 2 – 10)
Source – Encyclopedia of Hinduism Volume V page 494
Other resources – Kautilya – The Arthashastra 1992 L . N . Rangarajan – Penguin Classics.
Mahabharata Vol I – VI by Pandit Ramarayan Dutt Shastri 2004 – Gita Press Gorakhpur.