Article 265 and Taxation Power in India: Unravelling the Objects of Taxation
Introduction to Article 265
In the framework of Indian constitutional law, taxation powers are primarily governed by Article 265, which encapsulates a crucial part of the nation's financial system. Article 265 of the Indian Constitution succinctly states, "No tax shall be levied or collected except by authority of law." This constitutional provision forms the legal bedrock for all tax legislation, forming a fundamental safeguard for taxpayers by ensuring that the state cannot impose a tax without the sanction of the legislature.
Core Essence of Article 265
The backbone of this provision is that the imposition of a tax must have the backing of a legally enacted law. This statute ensures that the executive cannot unilaterally impose a tax without legal sanction. Therefore, the absence of a lawful enactment or if a law is found to be ultra vires (beyond one's legal power or authority), the tax levied under such law stands invalid.
Leading Case Law: Kunnathat Thathunni Moopil Nair v. State of Kerala
In the landmark case of Kunnathat Thathunni Moopil Nair v. State of Kerala, the Supreme Court of India pronounced that the law, under which a tax is imposed, must be valid. The court ruled that a tax imposed by an unconstitutional statute would itself be void, clearly demonstrating the non-negotiable requirement of a validly enacted law for taxation.
Objectives of Taxation under Indian Law
The framework of taxation governed by Article 265 serves several key objectives:
Revenue Generation: The primary purpose of taxation is to generate revenue for the government, which forms the fiscal backbone of the state. Taxes fund public expenditure, including infrastructure development, welfare schemes, defense, and other necessary state functions.
Redistribution of Wealth: Taxation aims to bring about a just distribution of wealth and bridge economic disparities. Progressive taxation, where the tax rate increases with the taxable amount, helps achieve this aim. Wealthy taxpayers bear a higher burden, which aids in reducing income inequality.
Economic Stability: Through fiscal tools like taxation, the government attempts to ensure economic stability. During inflation, the government can resort to surplus budgeting (higher taxes and lower expenditure), while during deflation, a deficit budget (lower taxes and higher expenditure) can be implemented.
Regulation of Economy: Taxes also serve as a mechanism to regulate the economy. Indirect taxes like GST can influence consumer behavior and guide economic trends. For instance, imposing higher taxes on harmful goods like cigarettes and alcohol can discourage their consumption.
Encouraging Local Industry: Customs duties and import taxes protect domestic industries from foreign competition, thus promoting the growth of local industry.
Critical Analysis: Article 265 and Taxation Power
Though Article 265 safeguards citizens against arbitrary taxation, it does not guarantee the reasonability of the tax imposed. The extent and rate of tax, as long as authorized by law, are solely within the legislature's discretion.
Nevertheless, the power to tax is not unlimited and is subject to the fundamental rights of the citizens. As per the Kunnathat Thathunni Moopil Nair case, taxation law should respect the equality clause (Article 14), and not be discriminatory or arbitrary.
Article 265 is an embodiment of the constitutional requirement that the state's taxation power must be exercised within the confines of law. Its essence lies in safeguarding taxpayers from arbitrary and unlawful imposition of tax. Moreover, it serves as a critical tool in achieving several socio-economic objectives such as revenue generation, wealth redistribution, economic stability, and regulation.