4 min read.Updated: 28 Dec 2016, 04:18 AM ISTAjit Ranade
If we want our tax system to be more equitable and fair, we need to sharply correct skew in favour of more direct taxes
As we head into the budget season, two standout features of India’s federal tax system need to be reiterated. Firstly, the tax to gross domestic product (GDP) ratio is very low. Last year’s Economic Survey says that at 16.6%, India’s ratio is lower than the emerging market economy average of 21%. It is also much lower than the Organization for Economic Co-operation and Development (OECD) average of 34%. Granted that income from agriculture is exempt from taxation in India. Even then the ratio of tax to taxable GDP ratio is still quite low. Among G-20 countries, India’s ratio is the third lowest, only slightly ahead of Mexico and Indonesia. Even when compared to countries with similar per-capita income (measured by purchasing power adjusted per capita GDP), India falls woefully short.