For the last two years, tax collections have grown at a faster pace than economic growth itself. In this piece for Mint, Dr Niranjan Rajadhyaksha, Executive Director, Artha Global, explains that continued growth in tax collections could lead to many benefits for the economy in the form of a higher tax/GDP ratio.
Excerpts below:
“There are two clear benefits of a rising consolidated tax/GDP ratio, or the amount of tax collected by all levels of government as a percentage of the nominal gross domestic product (GDP). First, buoyant tax collections can reduce the fiscal constraints on both the Union as well as state governments, making it easier for them to fund essential tasks such a national security, the provision of public goods and offering social security without running one of the highest fiscal deficits in the world. Second, a larger pool of tax revenues to be shared between different levels of government should hopefully ease some of the recent tensions in our system of fiscal federalism.”
“One of the goals of the tax reforms of the 1990s was to make the Indian tax system more progressive by increasing the share of direct taxes in the kitty. That is still a job half done. […] a rising share of direct taxes will create fiscal space for the government to cut rates of the goods and services tax (GST), thus spurring internal trade as well as international competitiveness.”
Read the full article here.
