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India's Tax-to-GDP Ratio Hits 19.6%, Nears Major Global Economies

India's combined tax-to-GDP ratio has reached 19.6%, placing it on par with several major global economies and ahead of peers like Malaysia and Indonesia. The report highlights a gap with advanced economies like Germany and the US, presenting a key policy opportunity. Upcoming structural reforms, including a new Income Tax Act in 2026, aim to simplify the system and widen the tax base by formalizing more of the economy. Historical data shows tax collections and GDP have converged since FY14, with current tax elasticity indicating collections are growing faster than the economy.

Key Points: India's Tax-to-GDP Ratio Reaches 19.6%: Report

  • Ratio at 19.6% matches major economies
  • Higher than many emerging markets
  • Gap remains with advanced economies
  • New Income Tax Act 2025 aims to widen base
2 min read

India's tax-to-GDP ratio reaches 19.6 pc, structural reforms key to further gains: Report

India's combined tax-to-GDP ratio reaches 19.6%, matching several global economies. Structural reforms and a new Income Tax Act aim to boost it further.

"This gap presents a major policy opportunity for India, especially given its favourable demographic profile. - Bank of Baroda Report"

New Delhi, Jan 25

India's combined tax-to-GDP ratio has reached 19.6 per cent, placing the country at par with several major global economies and highlighting steady progress in tax collection efficiency, according to a report by Bank of Baroda.

The ratio includes both central and state tax collections and is higher than that of several emerging markets such as Hong Kong, Malaysia and Indonesia.

The report noted that while India's central gross tax revenue stands lower at 11.7 per cent of GDP, the overall integrated figure reflects stronger participation by states and better compliance across the system.

However, India still trails advanced economies such as Germany, which has a tax-to-GDP ratio of around 38 per cent, and the United States, where the ratio is about 25.6 per cent.

Bank of Baroda said this gap presents a major policy opportunity for India, especially given its favourable demographic profile.

The report highlighted that the government is increasingly focusing on comprehensive tax reforms aimed at simplification, rationalisation and digitisation.

These efforts are expected to push the tax-to-GDP ratio higher in the coming years.

Key regulatory steps, including the introduction of the Income Tax Act, 2025, and the rationalisation of corporate tax structures, are expected to improve transparency and make compliance easier.

The new Income Tax Act, scheduled to come into effect from April 1, 2026, is also expected to widen the tax base by bringing more of the informal economy into the formal system.

The report's historical analysis shows that tax collections and nominal GDP have started moving more closely together over time.

Between FY93 and FY02, this relationship was volatile due to a narrow tax base. However, from FY14 onwards, a clear convergence has emerged, becoming more pronounced from FY23.

Current data suggest that tax elasticity is around 1.1, which is higher than the long-term average. This indicates that tax collections are growing faster than the economy.

The report also found a strong positive link between various tax components and macroeconomic indicators.

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 profitability among companies, with buoyancy levels remaining strong compared to historical trends.

- IANS

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Reader Comments

P
Priya S
Good progress, but let's not forget the gap with Germany (38%) and USA (~26%). We have a long way to go. The report is right about demographic opportunity—a young population should mean more earners and taxpayers. Hope the reforms focus on simplicity. The current tax portal, while better, can still be confusing for common people.
R
Rohit P
As a small business owner, I welcome simplification. The corporate tax rationalisation a few years back was a relief. If the new Act makes compliance easier and more transparent, it's a win-win. Better tax collection should translate to better infrastructure and services for us all. Fingers crossed!
S
Sarah B
Interesting comparative data. Being at par with some major economies is an achievement. The key point for me is the "stronger participation by states." Federal cooperation is crucial for a diverse country like India. Hope the increased revenue is used effectively for health and education.
V
Vikram M
Tax elasticity of 1.1 is the real story here! Collections growing faster than the economy shows the system is getting more efficient. Digitisation (GSTN, AIS) is clearly working. But the government must ensure this extra revenue is visible on the ground—better roads, less potholes please! 🚧
K
Karthik V
A respectful criticism: While the ratio is improving, we need to talk about how the tax is *spent*. Efficiency in collection is one thing, efficiency in expenditure is another. There's still too much leakage and wasteful subsidies. Before aiming for a higher ratio, let's ensure every rupee collected

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