India’s total tax to GDP has been gently inching up over the years but nowhere near the desired levels yet. While work remains to be done on this front, a factor to be considered is the contribution of direct and indirect taxes.
The chart shows the direct tax and indirect tax as a percentage of GDP from 2011-12. Since 2015-16, direct tax/GDP has risen much faster than the indirect tax/GDP ratio. In fact, indirect tax/GDP has been virtually stagnant, and with GST collections falling short of expectations may continue to do so.
An increase in the direct tax/GDP ratio compared to indirect tax is a welcome development from the equity standpoint. Direct taxes are progressive in terms of higher tax at a higher income slab, affecting the rich more than the rest. In indirect taxes, that’s not the case. The GST on telecom, for instance, affects all income classes equally as a proportion of their spending. The upcoming
Budget may see the government adopt measures to increase direct tax collections, by a wealth/inheritance tax.
Source: moneycontrol.com