History of the British salt tax in India

Salt has been produced all along the Rann of Kutch on the west coast of India for the past 5,000 years.[3] The Rann of Kutch is an extensive marshland that is cut off from the rest of the Indian subcontinent during monsoons when the seas inundate the low-lying areas. However, when the seawater evaporates during summer, it leaves behind a crust of salt which accumulates as salt pans.[3] This salt is collected by laborers called malangas.[3]

On the east coast, salt could be obtained extensively along the coast of Orissa.[3] The salt produced by the salt pans called khalaris in Oriya is of the finest quality in all India.[3] There has always been a demand for Orissa salt in Bengal.[3] When the British took over the administration of Bengal, they too felt its need and traded for salt. Gradually they monopolized Orissa salt all over Bengal.[3] To check smuggling and illegal transportation, they sent armies into Orissa, resulting in the conquest of Orissa in 1803.[3]

Salt is a commodity that had been taxed in India ever since the time of the Mauryas. Taxes on salt have been prevalent even during the time of Chandragupta Maurya. The Arthashastra, which describes the different duties of the people, says that a special officer called lavananadhyaksa was appointed to collect the salt tax. Taxes were also imposed on imported salt. However, they accounted for 25 percent of the total value of the salt.[5]

In Bengal, there was a salt tax in vogue during the era of the Mughal Empire, which was 5% for Hindus and 2.5% for Muslims.[5]

In 1759, two years after its victory at the Battle of Plassey, the British East India Company came into possession of land near Calcutta where there were salt works.[5] Utilizing this opportunity to make money, they doubled the land rent and imposed transit charges on the transportation of salt.[5]

In 1764, following the victory at the Battle of Buxar, the British began to control all the revenues of Bengal, Bihar and Orissa. Robert Clive, who returned as governor in 1765, made the sale of tobacco, betel nut, and salt (apart from other accessories and essential spices and condiments), the monopoly of the senior officers of the British East India Company. Contracts were given to deliver salt to depots,[5] and merchants were required to buy from these depots.[5]

The outrage was expressed by the authorities in England who declared:

We consider it too disgraceful, and below the dignity of the present situation, to allow such a monopoly.

Clive responded by offering the company 1,200,000 per annum from the profits made.

However, the authorities in England were stubborn, and due to the pressure they exerted, the monopoly of tobacco and betel nut was stopped on 1 September 1767, followed by the annulment of the salt monopoly on 7 October 1768.

In 1772, the governor-general, Warren Hastings, brought the salt trade once again under the company's control. The salt works were leased out to farmers who agreed to deliver salt at a fixed rate to the company and sold the leases to the highest bidders. Corruption dealt a severe blow to the company and the revenue from salt trade fell to 80,000 rupees by 1780. This, along with the exploitation of the malangas or salt workers by their landlords, forced Hastings to introduce a new system for controlling the salt trade in India.

In 1780 Hastings brought the salt trade once again under government control, dividing the infrastructure into agencies, each under the control of an agent and governed by a controller. This system persisted, with minor modifications, until India's independence in 1947. Under this new system, the malangas sold the salt to the agents at a particular price, initially fixed at 2 rupees a maund with a tax of 1.1 to 1.5 rupees a maund. This new system was a success, and in 1781–82, the salt revenue was 2,960,130 rupees. The company received salt revenue of 6,257,750 rupees in 1784–85.

From 1788 onwards, the company began selling salt wholesalers by auction. As a result, the British East India Company increased the tax to 3.25 rupees a maund, and the wholesale price of salt increased from 1.25 to about 4 rupees a maund. This was an exorbitant rate that few could afford.

In 1804, the British monopolized salt in the newly conquered state of Orissa. In return, they advanced money to the malangas against future salt production, resulting in the malangas becoming debtors to the British, virtually becoming economic slaves. The Orissa zamindars, who had earlier controlled the local salt trade, were alarmed at the sudden loss of income and tried to persuade the malanga not to work for the British, but to no avail.

In the early 19th century, to make the salt tax more profitable and reduce smuggling, the East India Company established customs checkpoints throughout Bengal. G. H. Smith established a "customs line", which was the boundary across which salt transportation involved payment of high customs duties. In the 1840s a thorn fence was erected along the western frontiers of Bengal province to prevent salt smuggling. Eventually, after 1857, the thorn fence grew to be 2,500 miles long.

A customs line was established, which stretched across the whole of India, which in 1869 extended from the Indus to the Mahanadi in Madras, a distance of 2,300 miles; and it was guarded by nearly 12,000 men and petty officers... it consisted principally of an immense impenetrable hedge of thorny trees and bushes, supplemented by stone wall and ditches, across which no human being or beast of burden or vehicle could pass without being subject to detention or search.

— (Strachey and Strachey 1882, 219-20)

The taxation laws introduced by the British East India Company were in vogue during the ninety years of British Raj which followed the demise of the company. The construction of a fence to prevent smuggling of salt, which was commenced during the company's rule, was completed during this period. Sources indicate that by 1858, British India derived 10% of its revenues from its monopoly of salt.[6] However, by the end of the century, the tax on salt had been considerably reduced.[6] In 1880, income from salt amounted to 7 million pounds.[7]

In 1900 and 1905, India was one of the largest producers of salt in the world, with a yield of 1,021,426 metric tons and 1,212,600 metric tonnes respectively.

In 1923, under the viceroyalty of Lord Reading, a bill was passed doubling the salt tax. However, another proposal made in 1927 was subsequently vetoed. It was one of Finance Member Basil Blackett's first deeds when producing his first budget in February 1923.

The first laws to regulate the salt tax were made by the British East India Company.

In 1835, the government appointed a salt commission to review the existing salt tax. It recommended that Indian salt should be taxed to enable the sale of imported English salt. Consequently, salt was imported from Liverpool, resulting in an increase in salt rates. Subsequently, the government set up a monopoly on the manufacture of salt by the Salt Act. Production of salt was made an offense punishable with six months' imprisonment. The committee also recommended that Indian salt be sold in maunds of 100. However, they were sold in much lesser quantities. In 1888, the salt tax was enhanced by Lord Dufferin as a temporary measure.[9] Cheshire salt imported from the United Kingdom was available at a much cheaper rate. However, Cheshire salt was of inferior quality compared to India's salt. India's salt imports reached 2,582,050 metric tons by 1851.

In 1878, a uniform salt tax policy was adopted for the whole of India, both British India as well as the princely states. Both production, as well as possession of salt, were made unlawful by this policy. The salt tax, which was one rupee and thirteen annas per maund in Bombay, Madras, the Central Provinces, and the princely states of South India, was increased to two rupees and eight annas and decreased from three rupees and four annas in Bengal and Assam to two rupees and fourteen annas, and from three rupees to two rupees and eight annas in North India.

Section 39 of the Bombay Salt Act, which was the same as Section 16-17 of the Indian Salt Act, empowered a salt-revenue official to break into places where salt was being illegally manufactured and seize the illegal salt being manufactured. Section 50 of the Bombay Salt Act prohibited the shipping of salt overseas.

The India Salt Act of 1882 included regulations enforcing a government monopoly on the collection and manufacture of salt. Salt could be manufactured and handled only at official government salt depots, with a tax of Rs1-4-0 on each maund (82 pounds).

In 1944 the Central Legislative Assembly passed the Excises and Salt Act (Act No. I of 1944), which, though modified in India and Pakistan, remain in force in Bangladesh.

A new salt tax was introduced to the Republic of India, via the Salt Cess, 1953, which received the assent of the president on 26 December 1953, and was brought into force on 2 January 1954.[2]

Then again there is a still more wretched creature, who bears the name of a laborer, whose income may be fixed at thirty-five rupees per annum. If he, with his wife and three children, consumes twenty-four seers [49 lb] of salt, he must pay a salt duty of two rupees and seven annas, or in other words 7 ½ percent income tax. Now we leave it to our readers to judge, whether the ryots and the laborers can procure salt in the quantities they require. We can positively state from our own experience, that an ordinary ryot can never procure more than two-thirds of what he requires, and that a laborer not more than half.[10]