Introduction

India’s tax landscape is anticipated to witness significant growth in the coming fiscal year, with the tax-to-GDP ratio expected to reach a historic high of 11.7%.
Revenue Secretary Sanjay Malhotra highlights the role of direct taxes in driving this uptick and emphasizes the government’s commitment to streamlining the tax regime for enhanced efficiency and reduced disputes.

Why ‘Tax-to-GDP’ Ratio matters?

The tax-to-GDP ratio measures a nation’s tax revenue relative to the size of its economy.
This ratio is used with other metrics to determine how well a nation’s government directs its economic resources via taxation.
Developed nations typically have higher tax-to-GDP ratios than developing nations.
Higher tax revenues mean a country can spend more on improving infrastructure, health, and education—keys to the long-term prospects for a country’s economy and people.
According to the World Bank, tax revenues above 15% of a country’s gross domestic product (GDP) are a key ingredient for economic growth and poverty reduction.

Expected Surge: India’s tax-to-GDP ratio is projected to hit 11.7% in 2024-25, showcasing a steady increase from 11.6% in the preceding year and 11.2% in 2022-23.
Dominance of Direct Taxes: The surge in the tax ratio is primarily attributed to the growth of direct taxes, which are deemed more equitable.

Optimistic Outlook: Revenue Secretary anticipates a rise in the adoption of the new tax regime, characterized by simplified tax structures and a higher tax-free income threshold.
Growth in Personal Income Tax: Personal income tax collections have witnessed a substantial 28% growth, with a projected moderation to 20%-22% by the fiscal year-end.

Ongoing Review: A Group of Ministers (GoM) appointed by the GST Council is reviewing the rate structure, aiming to rationalize GST rates on various items.
Quarterly Meetings: The GST Council is expected to convene regularly to address rate rationalization, although no fixed date has been announced yet.

Modest Projections: Despite a buoyant revenue growth of 1.4% this year, projections for the following fiscal year aim for a 1.1% buoyancy, aligning with an anticipated nominal GDP growth of 10.5%.
Corporate Tax Dynamics: The deadline for availing the reduced corporate tax rate ends in March 2023, with a significant proportion of companies already benefitting from it.
Enforcement Measures: While the Department of Revenue focuses on tax administration, the Enforcement Directorate intervenes in cases related to money laundering, ensuring comprehensive enforcement mechanisms.