Historical Income tax Background

According to historic records, Income Tax was introduced to the Indian sub continent public in 1860. After a couple of years, it got abolished because people were not satisfied that they had to pay some amount of their incomes. But afterwards, it was reinforced again as the government noticed its importance in terms of the total revenue of the country. James Wilson, the Scotsman who created first Budget in India, introduced the income tax act in 1860. This created a big controversy. Wilson argued since the British provided safe and secure environment to Indians to carry on trade they were justified in charging a fee in the form of an income tax.

Solving a crisis

Wilson arrived in India on November 28, 1859, two years after what the British call the Sepoy Mutiny and Indians their first War of Independence. The event had drained the resources of the government. The increased military expenditure had left it with big debts. Wilson, a self taught economist with a deep knowledge of how the market worked, was seen to be the man who could salvage the grave financial situation.

Need for tax

Wilson, a liberal and strong proponent of the policy of laissez faire, however, failed to see the irony of Britishers first suppressing Indians and then demanding a tax for providing them a secure atmosphere. His magazine, The Economist, was sceptical of imperialism. It argued in 1862 that colonies would be just as valuable to us…if they were independent. However, the magazine did believe in the colonial concept of the white man burden, saying that uncivilised races were owed guidance, guardianship and teaching.

Government intervention in economy

An article by two Canadian researchers in 2016 analysed the writings on India of Wilson magazine from 1843 to the 1860s. It argued that despite the adherence of the paper to the ideas of laissez faire nineteenth century liberal ideas of political economy, its writing on India and the political career of its founder and editor, James Wilson demonstrate a ready embrace of empire, government intervention in the economy, and increased taxation. The article suggests this difference can be explained by the expression of colonial difference and attitudes to race.

Valuable financial governance tool

While Wilson Budget gave India a valuable financial governance tool, his income tax act upset businesses as well as the landed class, the zamindars. Aversion to pay income tax, though understandable in colonial times, has persisted even 70 years after Independence.

Written on January 1, 2020