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?
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