Saturday, June 13, 2015

Window Tax, Daylight Robbery and Service Tax

Service tax has been increased from 12.36% to 14% with effect from 1st June 2015.  Many have interpreted this as "Daylight Robbery", inflicted by the Government on its subjects. Some also say it is "Highway Robbery".  In this context, it is pertinent to examine what is the difference between these two robberies and the history of service tax.  It is also relevant to understand how the word "Daylight Robbery" actually came into existence. Recalling the way service tax has developed over the years would remind us as to how we are paying through our nose and more often without realizing it!

Online dictionary defines "Robbery" as the "felonious taking of the property of another from his or her person or in his or immediate presence, against his or her will, by violence or intimidation".  The three elements of robbery are: taking away someone's property, against the owner's will and by violence or intimidation.  If the property is taken without the knowledge of the victim, it should be probably called as theft and not robbery.  If an element of consent can be brought in here, it ceases to be either theft or robbery! Popular perception is that when someone demands an outrageously high price for a product or service, it is called as "Daylight Robbery" as it is (like) a crime committed in broad daylight. "Highway Robbery" is different from daylight robbery since there is a choice for the robbed in daylight robbery, but no such luxury in highway robbery. One can refuse to buy or pay at such exorbitant price or charges and escape daylight robbery.  But in "Highway Robbery", there is no such option for the robbed because the robber is armed and threatening as it happens in robberies on highways or trains.   

The term "Daylight Robbery" has a historical background and connected to robbing of actual daylight one enjoyed in their homes. During the times of William III, monarch of England, Scotland and Holland, royal finances were in very bad shape and there was an urgent need to raise money from the public.  The tax levied at that time was known as "Hearth Tax".  Hearth is the floor of the fireplace of a house, usually made of brick or stone in one part of the house.  A fire is lit in this place to keep the house warm, especially in winter.  The picture given alongside shows a hearth. It was believed that the fireplace was an index to measure the taxable value of the house and it was simpler to measure this place instead of the entire house!  Bigger the house, bigger the hearth and higher the taxes.  

In order to assess the tax payable by the house owner, the tax assessor had to visit the house and measure the area of the hearth.  This was resented by many people. This paved the way for "Window Tax", a method of levying tax based on the number and size of the windows in a house, and replaced "Hearth Tax". There was no need for the tax assessor to visit the house now as he could count the number of windows or window-like openings from the street and finalize the tax amount.  A tax of 2 shillings per year was levied on every house as a minimum. Those houses with 10 to 20 windows were charged four shillings more, making it 6 shillings.  Houses with 20 to 30 windows were levied a window tax of 10 shillings per year. Houses with over 30 windows paid One Pound as tax.  It was 20 shillings per pound and 12 pennies per shilling in those days.

While many affluent people paid the window tax as a matter of status and prestige, others resented the tax.  In order to avoid payment of higher taxes, house owners reduced the size and number of windows in their houses. Many even bricked-up the existing windows in their buildings to be assessed for lower taxes. A specimen of bricked-up window is given in the picture alongside. As the number and sizes of windows were reduced to save tax, the quantum of daylight that was entering the house was naturally reduced.  This was referred as robbing of daylight by the tax administration and hence the term "Daylight Robbery" came into existence. This tax was introduced in 1696 and continued for 156 years, when it was repealed in 1851. Window tax was levied in France as well. Introduction of Income-tax in England in 1842 hastened the repealing of window tax law and allowed more daylight into houses. However, the term retained its popularity and came to be used for any exorbitant and unreasonable charges levied by others.   

Service tax was first levied in our country, and then increased from time to time, by successive governments  duly elected by the citizens.  Thus, there is an element of implied consent and hence it is not fair to call it as robbery in the first place.  It is a pain alright; but a pain inflicted by our own representatives whom we have lovingly chosen to rule us.  It can be compared to the pain generated by the kick of a grandchild; it hurts but you cannot complain!   A little peek into service tax regime makes an interesting study.  The menace of service tax started in a very small way as any other similar trouble would germinate.  It started in 1994 with a moderate rate of 5% and was levied only on 3 items.  Earning from service tax then was only Rupees 407 crores per year.  Over the next two decades, more and more items were added to the list coupled with increase in rates. The number of items had swelled from 3 to 119 in 2011-12 and earned a whopping Rupees 1,32,512 crores that year.  Last year's (2014-15) earnings by way of service tax was around 2,15,973 crore rupees. Levy of education cess further increased the incidence of service tax. Another wonderful thing happened in 2012. On 1st July 2012, the concept of "Negative List" was introduced.  That means all services are taxed except a few identified items placed on the negative list.

When one considers the growth of service tax as above, it is neither daylight robbery nor highway robbery.  It is actually both rolled into one and something more.  From the point of public finances, it is a remarkably efficient tool.  Collection mechanism is very easy and simple; everyone pays it.  Window tax and daylight robbery were better.  Only those who owned houses paid that tax.  Those who did not own property could have had as much of sunlight as they wanted in the open areas.  Service tax is paid by everyone including daily wage earners. It is like the hemophilia disease; the patient continuously bleeds because blood does not clot and often he does not know about it. Service tax has another interesting feature.  A small reduction in income tax grabs big headlines.  Interested lobbies make much noise when income tax is increased. Increase in service tax often goes unnoticed.  Income tax is paid periodically; may be every quarter and four or five times a year.  Service tax is paid four or five times a day or even more.  It is like breathing; happens regularly but seldom noticed until it finally stops.  


  1. We wouldn't mind paying the taxes so long as the Government provides us the benefits proportionate to the taxes.

  2. Wonderful narration to make one understand the tax system. I think Service Tax is more equitable way of tax collection than the Income Tax. But successive government has the habit of exploiting the milking cow making ST as a burden on society. Better rationalisation is needed in the tax system to achieve effective results with participation by majority of the population.

  3. Service tax , by definition, is for service provided or rendered. In the service industry there are two elements to the service tax - one is government tax and the other is from the service provider. On one of our visits to USA we were charged service tax on every transaction in the hotel and a final one on our final bill which meant we had to pay service tax on service tax . To add insult to injury the staff in the breakfast room expected a hefty tip even though it was a buffet breakfast ! Service industry is notorious for trying to boost their profits through this.

  4. There is a plethora of taxes.Some take the form of fee, surcharge, levy etc. Instead of tax it should be contribution towards nation building according to ones means and ability.

  5. There is a plethora of taxes.Some take the form of fee, surcharge, levy etc. Instead of tax it should be contribution towards nation building according to ones means and ability.