The first part of Chapter 2.21 of the Arthaśāstra deals with the activities of the Customs Superintendent, containing recommendations regarding the collection of customs duty. Scholars have encountered several difficulties in understanding the meaning and purposes of the activities described. An auction-like procedure described in the text has been analyzed by some as the normal operation of a market, with the payments to the treasury mentioned there taken as a hitherto-unknown market tax—the price of trading in the market. Other paragraphs in the text describe seemingly self-contradictory trader actions. Interpretations of these actions have involved the imbuing of traders with complex psychological beliefs regarding the actions of other traders. This article proposes an economic model of the underlying market structure, which leads to a different and integrated reading of the text. In this reading, the author of the text, recognizing the incentive for importers to undervalue their goods, suggests the auction procedure and accom- panying penalty payments to elicit truthful revelation of importers’ valuations and to maximize customs levy collections. By comparing the procedure in the Arthaśāstra to modern-day regulations intended to combat tax evasion, the article provides early evidence of the use of sophisticated mechanisms to elicit truthful value revelation.
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