New Delhi, January 25 (IANS). India’s tax-to-GDP ratio has increased to 19.6 percent, higher than other emerging markets Hong Kong, Malaysia and Indonesia. This information was given in a report of Bank of Baroda.
A higher tax-to-GDP ratio shows that tax efficiency is increasing in the country and collections are improving. This includes tax collection by the central and state governments.
The report said that although India’s central gross tax revenue is low at 11.7 per cent of GDP, the overall integrated figure reflects strong participation of states and better compliance across the system.
However, India’s tax-to-GDP ratio is still much lower than Germany’s 38 percent and the US’s 25.6 percent.
Bank of Baroda said this gap presents a huge policy opportunity for India, especially given its favorable demographic situation.
The report said the government is increasingly focusing on comprehensive tax reforms aimed at simplification, rationalization and digitalization.
These efforts are expected to increase the tax-to-GDP ratio in the coming years.
Key regulatory steps including the introduction of the Income Tax Act, 2025 and simplification of corporate tax structures are expected to improve transparency and ease of compliance.
The new Income Tax Act, which is scheduled to come into effect from April 1, 2026, is also expected to broaden the tax base by bringing more of the informal economy into the formal system.
The report said that historical analysis shows that tax collections and nominal GDP have started increasing closely over time.
The report noted that income tax collections show a strong correlation with both nominal GDP and per capita income – reflecting rising incomes and better compliance.
Corporate tax collections have also benefited from improved corporate profits, and remain at strong levels compared to historical trends.
–IANS
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