The tax-to-GDP ratio is a ratio of a nation’s tax revenue relative to its gross domestic product (GDP), or the market value of goods and services a country produces. Some countries aim to increase the tax-to-GDP ratio to address deficiencies in their budgets.
Taxes and GDP are generally related. The higher the GDP, the more tax a nation collects. Conversely, countries with lower taxes produce a lower GDP. Analysts, economists, and government leaders can use this ratio to see the rate at which taxes fuel a nation’s economy.
11.5% is the tax/gdp ratio of India.
Ways to improve:
- Increase tax base. Link GST data with direct tax filers.
- Prevent tax evasion.
- Simplification of Tax compliance. Example easier return forms, Government assisted return filing.
- The issues with GST need quick addressal.
- Reduction of tax litigation.
- Use of ICT and Artificial intelligence for filing of return and to prevent tax evasion.
- Cashless economy and digital infrastructure can increase the tax buoyancy.
- Formalisation of economy is also one of the solution.
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