(A) Kautilya’s thoughts about state treasury:
As per Kautilya, the state treasury plays a very important role for maintaining prosperity and safety of the state. The unity, stability and administration of the state are directly dependent on the state treasury. He said there are seven sources of income for the state.

They are:

1. Towns
2. Villages
3. Irrigation
4. Mines
5. Forest
6. Animal husbandry and
7. Trade and Commerce.

Kautilya provided following guidance to the kings for growth and maintenance of treasury:

• The king should guard his treasury and always develop new means to increase it.
• The king should collect taxes once in a year.
• The king should not use forceful methods to increase the treasury.
• The king should be gentle while collecting taxes from regions facing famine and drought.
• The king should use public property, promote trade and use gifts, penalties, fines and rewards, production of cash crops, etc. for increasing the state treasury.
• The state treasury mainly consists of physical (tangible) goods and therefore it is necessary to preserve such goods in proper warehouses and use them for public welfare as and when required.
• Kautilya also specified the rates of taxes for various categories of workers. For example, he suggested, to collect 1 /4th of the agricultural production as tax from individual farmers. He also suggested to collect one-half of the produce of individual manufacturers of cotton, wool, silk, wax and medicines as taxes.
• Even today, Kautilya’s thoughts of a welfare state are used by a state for its people.

(B) Kautilya’s thoughts about taxation policy:

• Kautilya gave clear principles of taxation that a state should follow. These principles include short term and long term tax policies, tax limits and tax rates that a king may impose.
• He also gave provisions for increasing tax rates during emergencies.
• As per Kautilya, the king should collect taxes from citizens as ripened fruits are collected from orchards while keeping in mind the economic ability of citizens to pay taxes.
• His taxation policy was such that it made the taxation process simple and less expensive.

Kautilya suggested the following types of taxes in the tax structure:
1. Land tax:

• Kautilya had framed rules to decide the proportion of taxes. He framed these rules on the basis of the type of land, its productivity, type of product produced, availability of irrigation facility and irrigation type.
• He also proposed tax exemptions as an incentive to increase productivity.

2. Import-export taxes:
Kautilya classified import-export taxes as follows:
(a) External charges (taxes): For goods produced in the country.
(b) Internal charges (taxes): For goods produced in the state or the capital.
(c) ‘Aatithya’ charges (taxes): For goods imported from foreign regions or states.

• Kautilya gave rules for putting taxes on various commodities on the basis of type of goods and their importance in economic life.
• He also proposed setting up booths for collecting customs and octroi.
• He also proposed rules for road tax and wealth tax.