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The significance of the tax GDP Ratio

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The tax GDP Ratio indicates a nation's tax revenue in terms of GDP. For instance, India's tax GDP ratioof 16% indicates that the public and private sectors contribute 16% of the country's GDP to the government through taxes. The tax GDP Ratio depicts the wealth of the public purse in this instance. The public authority's capacity to spend on financial improvement programs, military, compensation, annuity heads and so forth, rely on the GDP Ratio of taxes.

The ideal ratio of GDP to taxes

The government ought to collect sufficient funds to cover its expenses. Therefore, the tax GDP Ratio ought to be sufficient to cover government spending. The tax-to-GDP ratio in Western nations is higher. In addition, the government spends a lot of money there on things like free education, hospitals, and other necessities. India has a lower tax-to-GDP ratio than several other nations. According to the 2016–17 budget, the center and states' combined tax-to-GDP ratio is estimated to be around 16.5%. According to the 2016–17 budget and the 2017–18 budget, the tax GDP Ratio for the center was 11.3%.

Reasons for the low tax-to-GDP ratio

The lower tax-to-GDP ratio is due to the small tax base. Only 3% of the population of the country pays income tax. There is widespread tax avoidance. In a similar vein, businesses frequently avoid paying taxes. Another factor is ineffective tax administration.

What steps can India take to improve the tax-to-GDP ratio?

The government has taken a number of steps to increase the tax-to-GDP ratio over the past decade. The prevalence of the black economy is the primary obstacle. The fight against black money has gained strength thanks to the demonetization program and subsequent steps. There are essentially two steps that can be taken to boost GDP and taxes:

1 - Refinement of the Tax Structure

2 - Enhancing the Tax Administration

Enhancing the tax structure

A simplified tax structure with the optimum number of tax rates, optimum tax rates, low concessions and deductions, etc., is one way to improve tax administration. reduces tax evasion and avoidance opportunities. The following are government efforts in this direction: By eliminating all exemptions and deductions, the goal is to lower the corporate income tax rate to 25%. There are only three rates available for PIT. Deductions and exemptions that were not necessary were eliminated. In terms of indirect taxes, the introduction of the GST is expected to result in an increase in tax revenues due to the optimized rate structure, which includes four rates for both goods and services.

Improving tax administration - The central pillar for increasing tax revenues is now tax administration. In recent years, a number of administrative measures have been implemented to increase tax revenue. Important governmental procedures include:

1. PAN-Aadhaar linkage

2. Utilization of digital technology to enhance tax administration, such as Project Insight, e-way bills, Project Saksham, and other similar applications.

3. The Income Tax Department has launched Project Insight to keep track of high-value transactions.

4. The Central Board of Excise and Customs (CBEC) has launched a new indirect tax network (Systems Integration) known as "Project SAKSHAM." The Project will assist in: The Goods and Services Tax (GST), the expansion of the Indian Customs Single Window Interface for Facilitating Trade (SWIFT), and other tax-friendly initiatives under Digital India and the Central Board of Excise and Customs' Ease of Doing Business are all currently in effect.

1. E-TDS, tax deducted at source (TDS), and withholding taxes

2. Taxation by assumption

3. Choosing to use a single identification number (TIN), taxation of businesses and wealthy individuals

4. Increased tax enforcement, including increased requirements for transparency and disclosure

5. Review and improvement of tax deductions, exemptions, and incentives

6. Stricter regulations and oversight of transfer pricing

7. Extending the indirect tax net to include more services and goods.

The TARC asserts that technological advancements have significantly improved tax administration. transactions based on PANs; tax returns, among other things, have made the country's tax administration more effective.

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