CURRENT AFFAIRS FOR UPSC IAS

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