ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Raising the Tax-to-GDP Ratio

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The tax-to-GDP (gross domestic product) ratio of a nation represents the overall tax revenues as a percentage of the GDP and is an important indicator of socio-economic development and financing of government expenditure. India’s overall tax-to-GDP ratio (centre and states combined) has been abysmally low and stood at 17.32% as compared to the Organisation for Economic Cooperation and Development (OECD) countries’ average of 34% for 2018. It means that the government receives 17.32% of the GDP in the form of tax receipts from the public and companies. Only 4.5% of India’s population of 135 crore are income taxpayers.

Although the GDP grew three times from ₹ 49,87,090 crore in 2007–08 to ₹ 1,50,65,010 crore in 2016–17, the overall tax-to-GDP ratio (all India) increased marginally from 17.45% to 17.82% and the direct tax-to-GDP ratio (all India) actually declined from 6.39% to 5.72% during this period. India’s lower tax-to-GDP ratio is on account of a lower direct tax base and a large unorganised sector. While the real GDP grew at an average of 6.78% during the last 10 years from 2007–08 till 2016–17, the direct tax-to-GDP ratio growth averaged 5.81% during the same period. The deficit between the GDP growth rate and direct tax-to-GDP growth rate widened to 2.47% in 2016–17. This aberration has to be corrected and the direct tax-to-GDP ratio needs to be increased earnestly by bringing more people into the tax net.

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Updated On : 12th Jul, 2019
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