PART 3 10724
The Arthashastra is divided into 15 books, 150 chapters & 180
topics, as follows: Book Subject Description
Book-I Introduction/Duties/Training Chapters-21, Topics 1-18
Association with aged; restraint of organs of sense; the creation of
ministers, councillors and priests, ascertaining the character of ministers
and meetings, institution of spies. Protection of parties for or against
own cause in own state; winning over the factions for or against an enemy’s
cause in enemy’s state; the mission of envoys; protection of princes;
conduct/treatment of a prince under restraint, the duties of a king; duty
towards the harem, personal safety
Book-II Activities of Superintendents Chapters-36, Topics 19-56 Duties
of Chamberlain (Sannidhata), Revenue Collection by the Collector-General,
Accounting, Conduct of Government servants, Royal writs and mining.
Book-III Law & Justice Chapters-20, Topics 57-75 Forms of agreements,
legal disputes, marriage, inheritance, buildings, non-performance of
agreements; recovery of debts and deposits, slaves and labour laws,
co-operatives, purchase and sale, gifts and sale, ownership, robbery,
defamation, assault, gambling, and betting, miscellaneous
Book-IV Removal of Thorns Chapters-13, Topics 76-88 Protection of
artisans, merchants; remedies against calamities; suppression of the wicked
by foul means, detection of criminal tendency by ascetic spies; seizure of
criminals on suspicion, examination of sudden deaths, trial and torture to
confess, protection of government departments, fines in lieu of mutilation
of limbs; death with or without torture; sexual conducts, atonement for
violating justice.
Book-V Conduct of Courtiers Chapters-6, Topics 89-95 Awards of
punishments; replenishment of the Treasury, subsistence to government
servants; conduct of courtiers, timeserving, consolidation of kingdom and
sovereignty.
Book-VI The Source of Sovereign States, Chapters-2, Topics 96-97
Elements of sovereignty; concerning peace etc.
Book-VII Six-fold Strategy Chapters-18, Topics 98-126 The six-fold
policy, deterioration, stagnation and progress, alliances, equal, inferior
and superior kings, agreement made by an inferior king, neutrality, treaty
of peace, war after peace, combined powers, assailable enemy, strong enemy;
causes of dwindling, greed and disloyalty of the army, combination of
powers, agreement of peace with or without terms, double policy of peace
and war. Assailable enemy and friends, acquisition of land, measures
conducive to peace with a strong enemy, conquered enemy and king, making
peace and breaking it, circle of states.
Book-VIII Vices and Calamities Chapters-6, Topics 127-134 Calamities and
Sovereignty, troubles of the king, men, group of obstructions and financial
troubles of army and friends.
Book-IX King preparing to March into Battle Chapters-7, Topics 135-146
Knowledge of power, place, time, strength and weakness, time of invasion,
recruiting the army, equipment, arraying a rival force, annoyance in the
rear, remedies against internal and external troubles, loss of men, wealth
Book-X Invasion and War Chapters-6, Topics 147-159 Encampment; march of
the camp; protection of the army in times of distress and attack, of
treacherous fights, encouraging army, enemy’s armies; battle-fields; the
work of infantry, cavalry, chariots and elephants; distinctive array of
troops in respect of wings, flanks and front; distinction between strong
and weak troops; battles with infantry, cavalry, chariots and elephants;
array of the army like staff, a snake, a circle or in detached order.
Book-XI Conduct of Confederacies and corporations Chapters-1, Topics
160-161 Causes of dissension; secret punishment
Book-XII On the Powerful/ Weaker King Chapters-5, Topics 162-170 Duties
of messengers; battle of intrigue, slaying the commander-in-chief, inciting
a circle of states, spies with weapons, fire, and poison; destruction of
supply of stores, Granaries, capture of enemy by secret contrivances or
army; and complete victory
Book-XIII Means of Capturing a Fort Chapters-5, Topics 171-176 Sowing
the seeds of dissension; enticement of kings by secret contrivances, work
of spies in a siege, operation of a siege restoration of peace in a
conquered country.
Book-XIV Secret and Esoteric Practices Chapters-4, Topics 177-179 Means
to injure enemy, wonderful, and delusive contrivances, remedy against
injuries of own army.
Book-XV Organization of a Scientific Treatise, Chapters-1, Topic 180
The Plan of a Treatise, all verses dealing with agreements between kings
collected together in this section, starting with the nature of treaties.
Mentioned in Book-II are: > ‘Sannidhata’ attends upon the king and
looked after the construction of the treasure-house, trading house, the
store house of grains, the store house of forest produce, the armory and
jail.
> Chapters XIII-XXIII describes duties of various Superintendents, for
Goldsmiths, Stores, Commerce, Forests, Armory, Weights and Measures, Time,
Tolls, Weaving, Agriculture, Liquor, Slaughterhouse, Prostitutes, Animals
(separately for Cows, Elephants, Horses), Chariots, Pasture lands and City
Superintendents.
> Chapter VI describes the business of collection of revenue by the
Collector-General. Kautilya advocated limiting the taxation power of the
State, having low rates of taxation, maintaining a gradual increase in
taxation, and devising a tax structure that ensured compliance. He strongly
encouraged foreign trade & regarded economic activity as the driving force.
He went to the extent of saying that revenue should take priority even over
the army, because sustaining the army was possible only out of a
well-managed revenue system.
> Chapter XXXV prescribes duty of revenue Collector, with his staff &
THE SCHEME OF TAX COLLECTION IN ‘THE ARTHASHASTRA
“As one plucks the ripe fruits, one after another from a garden, so
should the king from his kingdom. Out of fear of his own destruction, he
should avoid unripe one’s which give rise to revolts”. -Stocking the Treasury-
Arthashastra, 5.2.70 The means of increasing the wealth of the State have
been listed as- Ensuring the prosperity of state enterprises, continuing
well tried [and successful] policies, eliminating theft, keeping strict
control over government employees, increasing agricultural production,
promoting trade, avoiding troubles and calamities, reducing [tax]
exemptions and remissions and increasing cash income {2.8.3}. Obstruction,
misuse of government property and false accounting by government servants
lead to a reduction of wealth. {2.8.4}.
Fair taxes build popular support for the king. Manufacturers and
artisans were subject to a flat tax. Agriculture on privately owned land
was taxed at the rate of 16.67%, exempted at the time of famine, epidemic,
previously uncultivated or damaged during a war. New public projects such
as irrigation and water works were exempt from taxes for five years, and
major renovations to ruined or abandoned water works were granted tax
exemption for four years. Temple and gurukul lands were exempt from taxes,
fines, or penalties. Trade into and outside the kingdom’s borders were
subject to toll, fees, or duties. Taxes varied between 10% to 25% on
industrialists and businessmen, and it could be paid in kind or in cash. The
complete list of taxes mentioned in the text is:
1.Customs duty (sulka) which consists of: import duty (pravesya) export
duty (nishkramya) and octroi and other gate tolls (dwarabahirikadeya) 5.
Taxes in kind (pratikara) including Labour (vishti) Supply of soldiers
(ayudhiya) 9. Royalty (prakriya)
2. Transaction tax (vyaji) including manavyaji (transaction tax for Crown
goods) 6. Countervailing duties or taxes (vaidharana) 10. Taxes paid in
kind by villages (pindakara)
3. Share of production (bhaga) including l /6th share (shadbhaga) 7. Road
cess (vartani) 11. Army maintenance tax (senabhaktham)
4. Tax (kara) in cash 8. Monopoly tax (parigha) 12. Surcharges (parsvam)
REMISSION OF TAXES Kautilya never supported atrocious collection of
taxes. At required time he has advised king for ‘Remission of Taxes’ also.
‘The Arthashastra’ stipulates, restraint on taxes imposed, fairness and
suggests that the tax should be “convenient to pay, easy to calculate,
inexpensive to administer, equitable and non-distortive, and should never
inhibit growth. Kautilya warns king on the overzealous tax collectors, who
collect more. He who causes loss of revenue eats the king’s wealth, [but]
he who produces double the [anticipated] revenue eats up the country and he
who spends all the revenue [without bringing any profit] eats up the labor
of workmen.” {2.9.13, 15, 17}
From {3. 11.20}, we note that, in case anyone became bankrupt, debts
owed to the state had priority over other creditors. Kautilya knew that
apart from collection mechanism, proper accounting was important. As per
Arthashastra, superintendent of accounts shall have the accountants’ office
constructed with seats (for clerks) kept apart and with shelves for account
books.
DEVELOPMENT OF PRINCIPLES OF ACCOUNTING Kautilya’s Arthshastra
covers accounting principles and standards, role and responsibilities of
accountants and auditors, the methodology of accounting, auditing, and
fraud risk management. The superintendent was required to personally
supervise the increase or diminution sustained in grains when they are
pounded, frayed, reduced to flour, or dried after soaking in water, as per
the given standards. The real fascinating approach was that he recognized
conflict of interest between finance and auditing functions. He
categorically stated that the head of finance and head of audit should
independently and separately report to the king. Recognizing the
possibility of ‘conflict of interest’, he proposed to separate offices of
the Treasurer and Comptroller Auditor.
STRESS ON ETHICS AND MANAGEMENT INFORMATION SYSTEM Kautilya
acknowledged the co-relation between the ethical values and the
professional skills. In accounting, he discussed fraudulent reporting. He
devised a system of reward and punishment to ensure compliance. Kautilya
focused on bookkeeping rules to record and classify economic data,
emphasizing the critical role of independent periodic audits. The concept
of continuous monitoring, auditing, verification, and vouching existed in
his time. He realized that a proper measurement of economic performance was
essential for efficient allocation of limited resources.
FRAUD RISK MANAGEMENT PRACTICES Kautilya addressed the possibility
of the financial fraud risks in 4th century BC, some of which are still
used. Book-II, Chapter VIII describes detection of embezzlement by
government servants out of State Revenue. Kautilya proposed a central
investigation agency for a kingdom to do espionage work. Spies were
positioned in all the departments and ventures to ensure that officers do
not abuse their power. It is amazing that Kautilya identified forty
different possible ways, used to embezzle the Treasury. This is one of the
earliest records documenting embezzlements.
‘STANDARDIZATION OF MEASUREMENTS – The 28 embezzlements related to
documentation was broadly classified into: a. Not recording a transaction,
b. Recording a fictitious transaction, c. Recording a transaction
incorrectly. d. Unauthorized transactions, e. Mismatch between the time of
recording and the physical transaction f. Use of defective standards
related to physical goods.
CONDUCT RULES FOR OFFICIALS AND SYSTEM OF PUNISHMENT Kautilya appears
to be well-versed with the characteristics of bureaucrats and laid down
some rules to prevent misuse of authority. For enquiries, Kautilya
suggested that―” Separately examine the treasurer, the prescriber, the
receiver, the payer, the person who caused the payment, the ministerial
servants of the officer for financial frauds.” The concept of whistle
blower is also found. The punishment for fraud depended on the nature and
value of fraud. It ranged from nominal fines to death penalty. The victim
of fraud was compensated for the losses suffered.
EMPLOYEES’ WELFARE AND VISION OF A WELFARE STATE While government
servants were always under suspicion of skimming off government revenues
{2.9.32-34}, they were also rewarded for good work. ‘Those officials who do
not eat up the king’s wealth but increase it in a just manner and are
loyally devoted to the king shall be made permanent in service’ {2.9.36}.
‘An official who accomplishes a task as ordered or better shall be honored
with a promotion and rewards.’ {2 .9 .9} The family of a government servant
who died on duty was looked after by the state {5.3 .28-30}. The salaries
of state employees are given in {5.3}. It is interesting to note that
Kautilya fixes the ceiling on expenditure on salaries at one-quarter of
revenue {5.3. 1}
KR IRS 10724 11724 End of part 3
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