• UGI USER
  • Jul 27, 2024
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CAPITAL GAINS TAX CHANGES AND TAX-TO-GDP RATIO

Why in the news?

  • Revenue Secretary Sanjay Malhotra stated that India’s tax-to-GDP ratio is not low, contrary to popular belief.
  • The ratio is about 18% when including both central (12%) and state (6%) taxes.
  • Higher tax-to-GDP ratios in India can be attributed to income levels relative to per capita income.
source:scribd

Tax-to-GDP Ratio: Key Points

  • Measures size of tax revenue compared to GDP.
  • Expressed as a percentage.
  • Higher ratio indicates a stronger financial position and wider fiscal net.
  • Reduces government reliance on borrowing.
  • Reflects tax burden and government’s capacity to fund operations.
  • Increases with national wealth (Wagner’s law).
  • Example: $100 billion GDP with $10 billion taxes equals 10% ratio.
What is the Tax-to-GDP Ratio?

  • Definition: Measures total tax revenue as a percentage of GDP.
  • Purpose: Indicates taxation level relative to economic output.
  • Significance:
  • Helps assess the government’s tax collection efficiency.
  • Reflects fiscal capacity and economic health.

Usage:

  • Policy making
  • Economic analysis
  • International comparisons