India’s tax-to-GDP ratio has hit 19.6%, aligning the country with major global economies, showcasing improved tax collection efficiency, as per a Bank of Baroda report.
The ratio encompasses both central and state tax revenues, surpassing that of several emerging markets like Hong Kong, Malaysia, and Indonesia. While India’s central gross tax revenue lags at 11.7% of GDP, the combined figure reflects robust state participation and enhanced system compliance.
Despite this progress, India trails advanced economies like Germany with a 38% tax-to-GDP ratio and the United States with 25.6%. Bank of Baroda sees this gap as a significant policy opportunity for India, given its favorable demographics.
The government’s focus on comprehensive tax reforms, emphasizing simplification, rationalization, and digitization, is expected to elevate the tax-to-GDP ratio in the future. Regulatory measures such as the upcoming Income Tax Act, 2025, and corporate tax structure rationalization aim to enhance transparency and ease compliance.
Historical analysis in the report indicates a closer alignment between tax collections and nominal GDP over time. The tax elasticity currently stands at 1.1, suggesting tax revenues are outpacing economic growth, with a positive correlation observed between tax components and macroeconomic indicators.
