{"id":27825,"date":"2024-02-17T08:14:29","date_gmt":"2024-02-17T08:14:29","guid":{"rendered":"https:\/\/edukemy.com\/blog\/?p=27825"},"modified":"2024-02-17T08:14:31","modified_gmt":"2024-02-17T08:14:31","slug":"upsc-mains-what-do-you-understand-about-the-tax-gdp-ratio-how-does-a-lower-tax-to-gdp-ratio-affect-a-developing-economy-like-india-what-reform-measures-are-required-to-improve-it-discuss","status":"publish","type":"post","link":"https:\/\/edukemy.com\/blog\/upsc-mains-what-do-you-understand-about-the-tax-gdp-ratio-how-does-a-lower-tax-to-gdp-ratio-affect-a-developing-economy-like-india-what-reform-measures-are-required-to-improve-it-discuss\/","title":{"rendered":"UPSC Mains &#8211; What do you understand about the Tax-GDP Ratio? How does a lower tax-to-GDP ratio affect a developing economy like India? What reform measures are required to improve it? Discuss."},"content":{"rendered":"\n<figure class=\"wp-block-image size-full\"><a href=\"https:\/\/edukemy.com\/refer-and-earn\" target=\"_blank\" rel=\"noreferrer noopener\"><img fetchpriority=\"high\" decoding=\"async\" width=\"1280\" height=\"300\" src=\"https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/09\/Attempt-our-Daily-Weekly-Current-Affairs-Quiz-now-10-1.png\" alt=\"\" class=\"wp-image-46428\" srcset=\"https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/09\/Attempt-our-Daily-Weekly-Current-Affairs-Quiz-now-10-1.png 1280w, https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/09\/Attempt-our-Daily-Weekly-Current-Affairs-Quiz-now-10-1-1170x274.png 1170w, https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/09\/Attempt-our-Daily-Weekly-Current-Affairs-Quiz-now-10-1-585x137.png 585w\" sizes=\"(max-width: 1280px) 100vw, 1280px\" \/><\/a><figcaption><a href=\"https:\/\/edukemy.com\/refer-and-earn\" target=\"_blank\" rel=\"noopener\" title=\"\">Refer &amp; Earn NOW<\/a><\/figcaption><\/figure>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_73 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<label for=\"ez-toc-cssicon-toggle-item-6a1538c177c0c\" class=\"ez-toc-cssicon-toggle-label\"><p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-cssicon\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a1538c177c0c\"  \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/edukemy.com\/blog\/upsc-mains-what-do-you-understand-about-the-tax-gdp-ratio-how-does-a-lower-tax-to-gdp-ratio-affect-a-developing-economy-like-india-what-reform-measures-are-required-to-improve-it-discuss\/#Introduction\" title=\"Introduction:\">Introduction:<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/edukemy.com\/blog\/upsc-mains-what-do-you-understand-about-the-tax-gdp-ratio-how-does-a-lower-tax-to-gdp-ratio-affect-a-developing-economy-like-india-what-reform-measures-are-required-to-improve-it-discuss\/#Body\" title=\"Body:\">Body:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/edukemy.com\/blog\/upsc-mains-what-do-you-understand-about-the-tax-gdp-ratio-how-does-a-lower-tax-to-gdp-ratio-affect-a-developing-economy-like-india-what-reform-measures-are-required-to-improve-it-discuss\/#The_Tax-GDP_Ratio\" title=\"The Tax-GDP Ratio:\">The Tax-GDP Ratio:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/edukemy.com\/blog\/upsc-mains-what-do-you-understand-about-the-tax-gdp-ratio-how-does-a-lower-tax-to-gdp-ratio-affect-a-developing-economy-like-india-what-reform-measures-are-required-to-improve-it-discuss\/#Reasons_for_Low_Tax-to-GDP_Ratio\" title=\"Reasons for Low Tax-to-GDP Ratio:\">Reasons for Low Tax-to-GDP Ratio:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/edukemy.com\/blog\/upsc-mains-what-do-you-understand-about-the-tax-gdp-ratio-how-does-a-lower-tax-to-gdp-ratio-affect-a-developing-economy-like-india-what-reform-measures-are-required-to-improve-it-discuss\/#Implications_of_Low_Tax-to-GDP_Ratio\" title=\"Implications of Low Tax-to-GDP Ratio:\">Implications of Low Tax-to-GDP Ratio:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/edukemy.com\/blog\/upsc-mains-what-do-you-understand-about-the-tax-gdp-ratio-how-does-a-lower-tax-to-gdp-ratio-affect-a-developing-economy-like-india-what-reform-measures-are-required-to-improve-it-discuss\/#Various_Measures_to_Increase_the_Tax-to-GDP_Ratio\" title=\"Various Measures to Increase the Tax-to-GDP Ratio:\">Various Measures to Increase the Tax-to-GDP Ratio:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/edukemy.com\/blog\/upsc-mains-what-do-you-understand-about-the-tax-gdp-ratio-how-does-a-lower-tax-to-gdp-ratio-affect-a-developing-economy-like-india-what-reform-measures-are-required-to-improve-it-discuss\/#Conclusion\" title=\"Conclusion:\">Conclusion:<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/edukemy.com\/blog\/upsc-mains-what-do-you-understand-about-the-tax-gdp-ratio-how-does-a-lower-tax-to-gdp-ratio-affect-a-developing-economy-like-india-what-reform-measures-are-required-to-improve-it-discuss\/#In_case_you_still_have_your_doubts_contact_us_on_9811333901\" title=\"In case you still have your doubts, contact us on 9811333901.&nbsp;\">In case you still have your doubts, contact us on 9811333901.&nbsp;<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/edukemy.com\/blog\/upsc-mains-what-do-you-understand-about-the-tax-gdp-ratio-how-does-a-lower-tax-to-gdp-ratio-affect-a-developing-economy-like-india-what-reform-measures-are-required-to-improve-it-discuss\/#Visit_our_YouTube_Channel_%E2%80%93_here\" title=\"Visit our YouTube Channel \u2013&nbsp;here\">Visit our YouTube Channel \u2013&nbsp;here<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Introduction\"><\/span>Introduction: <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>India has one direct taxpayer for every 16 voters, with only 1% of the population paying income tax. The Tax-GDP ratio, representing the proportion of tax revenue to GDP, is a crucial indicator of the government&#8217;s financial strength. India&#8217;s Gross tax-to-GDP ratio for FY22 is projected to be 10.8%, significantly lower than the emerging market economy average of 21% and the OECD average of 34%.<\/p>\n\n\n\n<p class=\"has-text-align-center\"><img decoding=\"async\" data-src=\"https:\/\/lh7-us.googleusercontent.com\/MvkKXAvBohJ2RWMUu24FShWQ0eyL6g2Rd8bgBjuQ1GgRqPR5pkErAGehPvAboaxTBW6aRa5kzrQPLmpBqAMunQ_LcMcJUd1JcwmDuuYp8E8GAZlb6UDWm6514qCNl_09gQQC466yyJ5J44RHIxxT6mQ\" width=\"481\" height=\"145\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" class=\"lazyload\" style=\"--smush-placeholder-width: 481px; --smush-placeholder-aspect-ratio: 481\/145;\"><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Body\"><\/span>Body: <span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_Tax-GDP_Ratio\"><\/span>The Tax-GDP Ratio:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul class=\"wp-block-list\"><li> The tax-to-GDP ratio is a metric that measures the proportion of tax collected relative to a nation&#8217;s gross domestic product (GDP), providing policymakers and analysts with a tool for comparing tax receipts over different years. <\/li><li>India&#8217;s Gross tax-to-GDP ratio was 11% in FY19, declined to 9.9% in FY20, marginally improved to 10.2% in FY21 (partly due to a decline in GDP), and is expected to be 10.8% in FY22. <\/li><li>A higher tax-to-GDP ratio indicates the government&#8217;s capacity to extend its fiscal reach, reducing dependence on borrowing and serving as an indicator of effective control over a country&#8217;s economic resources. <\/li><li>This ratio offers insight into the scale of a country&#8217;s tax collection efforts, directly linking the strength of its financial position to the relationship between tax revenue and GDP. <\/li><li>A greater tax-to-GDP ratio not only signifies the government&#8217;s broader fiscal influence but also contributes to reducing reliance on borrowing, emphasizing the importance of this metric in assessing a government&#8217;s fiscal responsibility.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Reasons_for_Low_Tax-to-GDP_Ratio\"><\/span>Reasons for Low Tax-to-GDP Ratio: <span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul class=\"wp-block-list\"><li>The substantial informal sector in India fosters greater tax evasion, contributing to a low tax-GDP ratio. The dominance of the agricultural sector, constituting a significant portion of households, results in a large exemption from taxes. <\/li><li>High levels of disputes between tax authorities and taxpayers, coupled with low recovery rates of tax arrears, contribute to the low tax-GDP ratio. <\/li><li>India&#8217;s direct-to-indirect tax ratio (35:65) is lower compared to OECD economies (67:33), impacting revenue generation from direct taxes. <\/li><li>Generous government policies providing tax exemptions disproportionately benefit the affluent private sector, further reducing tax revenues. Low per capita income and high poverty levels contribute to the overall low tax-GDP ratio.<\/li><\/ul>\n\n\n\n<p class=\"has-text-align-center\"><img decoding=\"async\" data-src=\"https:\/\/lh7-us.googleusercontent.com\/nCB4x_mfHEXboXIJTMdcRyq3RwZmeIjasgptQ0WbgG26e5b0SCjv_OXxJ5fNUarhJrOl_D1OKI_w5JU3qMrEeIirdrl-LuL_K_m35JVYohDn7ScCSOOYNMILiufz0NFi1geAo2TYlpF78zz9AbirRN8\" width=\"543\" height=\"221\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" class=\"lazyload\" style=\"--smush-placeholder-width: 543px; --smush-placeholder-aspect-ratio: 543\/221;\"><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Implications_of_Low_Tax-to-GDP_Ratio\"><\/span>Implications of Low Tax-to-GDP Ratio: <span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul class=\"wp-block-list\"><li>Diminished tax revenues limit government spending on national security, welfare, and public goods. <\/li><li>Heavy reliance on borrowing leads to a persistent fiscal deficit bias in India&#8217;s fiscal policy. The political incentive to borrow for populist measures hinders the development of an effective tax system, impacting economic growth. <\/li><li>Unchecked tax evasion hampers economic growth, burdening high-productivity sectors with the majority of the tax load. <\/li><li>Reduced tax collections limit the government&#8217;s capacity to fund welfare schemes, exacerbating social inequality. Increased dependence on regressive indirect taxes further adds to economic disparities.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Various_Measures_to_Increase_the_Tax-to-GDP_Ratio\"><\/span>Various Measures to Increase the Tax-to-GDP Ratio:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul class=\"wp-block-list\"><li>Expand the individual taxpayer base to enhance revenue collection. Implement the merging of CBDT and CBEC based on recommendations from the Tax Administration Reform Commission (TARC). <\/li><li>Re-assess exemptions under provisions like transfer pricing and base erosion and profit shifting (BEPS). <\/li><li>Simplify direct tax laws as suggested by the Justice Easwar committee and introduce GST with robust IT infrastructure (e.g., Project SAKSHAM, Project INSIGHT). <\/li><li>Foster a sense of national responsibility to change citizens&#8217; attitudes towards tax compliance.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion: <span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>To boost the tax-to-GDP ratio, it is crucial to implement progressive income taxes along with a mix of indirect taxation, property taxes, and capital taxes. The focus should be on not just deepening but widening the tax base, particularly by integrating India&#8217;s informal sector into the formal economy. This comprehensive approach is essential for sustainable fiscal growth and economic development.<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><a href=\"https:\/\/edukemy.com\/free-resources-for-upsc?utm_source=Blog&amp;utm_medium=Banner&amp;utm_campaign=Resources\" target=\"_blank\" rel=\"noreferrer noopener\"><img decoding=\"async\" width=\"1280\" height=\"300\" data-src=\"https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/06\/18.png\" alt=\"\" class=\"wp-image-42398 lazyload\" data-srcset=\"https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/06\/18.png 1280w, https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/06\/18-1170x274.png 1170w, https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/06\/18-585x137.png 585w\" data-sizes=\"(max-width: 1280px) 100vw, 1280px\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 1280px; --smush-placeholder-aspect-ratio: 1280\/300;\" \/><\/a><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"In_case_you_still_have_your_doubts_contact_us_on_9811333901\"><\/span><strong>In case you still have your doubts, contact us on 9811333901.<\/strong>&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>For UPSC Prelims Resources,&nbsp;<a href=\"https:\/\/edukemy.com\/upsc-cse-prelims-resource-centre\" target=\"_blank\" rel=\"noreferrer noopener\">Click here<\/a><\/p>\n\n\n\n<p>For Daily Updates and Study Material:<\/p>\n\n\n\n<p>Join our Telegram Channel \u2013&nbsp;<a href=\"https:\/\/t.me\/WithEdukemy4IAS\" target=\"_blank\" rel=\"noreferrer noopener\">Edukemy for IAS<\/a><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>1. 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Mains Answer Writing Practice \u2013&nbsp;<a href=\"https:\/\/bit.ly\/3mZuVxl\" target=\"_blank\" rel=\"noreferrer noopener\">here<\/a><\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Visit_our_YouTube_Channel_%E2%80%93_here\"><\/span>Visit our YouTube Channel \u2013&nbsp;<a href=\"https:\/\/www.youtube.com\/@ShabbirsEduKemyforIAS\" target=\"_blank\" rel=\"noreferrer noopener\">here<\/a><span class=\"ez-toc-section-end\"><\/span><\/h4>\n","protected":false},"excerpt":{"rendered":"<p>India has one direct taxpayer for every 16 voters, with only 1% of the population paying income tax. The Tax-GDP ratio, representing the proportion of tax <\/p>\n","protected":false},"author":17,"featured_media":27561,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_eb_attr":"","om_disable_all_campaigns":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_uf_show_specific_survey":0,"_uf_disable_surveys":false,"_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"categories":[1643],"tags":[232,515,230],"class_list":["post-27825","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-upsc-mains","tag-upsc","tag-upsc-cse","tag-upsc-mains"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/posts\/27825","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/users\/17"}],"replies":[{"embeddable":true,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/comments?post=27825"}],"version-history":[{"count":1,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/posts\/27825\/revisions"}],"predecessor-version":[{"id":27829,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/posts\/27825\/revisions\/27829"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/media\/27561"}],"wp:attachment":[{"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/media?parent=27825"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/categories?post=27825"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/tags?post=27825"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}