Published: 9th Feb, 2024
Context
There has been predictions that India’s tax-to-GDP ratio is expected to hit a record high of 11.7% of GDP in 2024-25, led by an uptick in the more ‘equitable’ direct taxes.
What is the tax-to-GDP ratio?
- The tax-to-GDP ratio represents a country's tax kitty relative to its GDP, indicating the government's ability to finance its expenditure.
- Simply put, it is the share of taxes in the overall output generated in the country.
- A higher ratio denotes a wider fiscal net and reduced dependence on borrowings.
- Impact of lower ratio: A lower ratio poses challenges for the government's spending on critical infrastructure and investments. It also strains fiscal deficit targets and constrains expenditure despite robust economic growth.
- What measures can potentially boost the ratio (to increase revenue)?
- Enhancing tax compliance
- implementing the Direct Tax Code
- rationalizing GST
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