Kautilya on principles of taxation

Purpose – The purpose of this paper is to present Kautilya's principles of taxation during the fourth century BCE. Design/methodology/approach – Modern tools of economic analysis are used to present Kautilya's principles on income taxation. Findings – Kautilya implicitly suggests a linear income tax. He emphasizes fairness, stability of tax structure, fiscal federalism, avoidance of heavy taxation, ensuring of tax compliance and subsidies to encourage capital formation. Research limitations/implications – According to Kautilya, some linkage between the ability to pay (i.e. provision of a safety net to the poor, old and the sick) and the benefit principle may be better than the current approaches, which treat the ability to pay and the expenditure side of the taxation separately. Practical implication – Ensuring tax compliance and avoidance of heavy taxation are the most important ingredients of a sound fiscal policy. Originality/value – The paper presents the very first growth‐oriented fiscal policy along with a provision of a safety net.