‘India’s tax-to-GDP ratio to hit a record high of 11.7% of GDP in 2024-25’

India’s tax to GDP ratio is expected to hit a record high of 11.7% of GDP in 2024-25, led by an uptick in more ‘equitable’ direct taxes, and the government will continue to simplify and rationalise the tax regime to reduce disputes, litigation and intrusive means of enforcement, Revenue Secretary Sanjay Malhotra has said.

India’s tax-to-GDP ratio is expected to hit a record high of 11.7% of GDP in 2024-25, led by an uptick in more ‘equitable’ direct taxes, and the government will continue to simplify and rationalise the tax regime to reduce disputes, litigation and intrusive means of enforcement, Revenue Secretary Sanjay Malhotra has said.

Noting that frequent changes in tax rates “don’t help”, Mr. Malhotra said corporate and personal income taxes have been recently reduced, and he was hopeful that a high proportion of income tax payers will opt for the new tax regime that doesn’t allow deductions but offers a higher tax-free income threshold. Growth in Personal Income Tax collections stands at 28% so far this year, and may moderate to 20%-22% by the end of March, the Secretary said.

On the prospects for rationalising the Goods and Services Tax (GST) rates, the Revenue Secretary said that a Group of Ministers (GoM) tasked by the GST Council to review the rate structure has been reconstituted, but small changes to rationalise rates on different items are a continuing exercise in the Council. The GST Council is expected to meet every quarter and should meet soon, but no date has been fixed yet, he told The Hindu.

“The tax-to-GDP ratio should be at an all-time high next year at 11.7% from 11.6% this year and 11.2% in 2022-23. This is primarily because of direct taxes increasing from 6.1% of GDP in 2022-23 to 6.6% this year and 6.7% next year, which is more equitable,” Mr. Malhotra said, noting that indirect taxes are also increasing but remain stagnant at around 5% of GDP.

“As the economy grows and per capita income increases, as per other countries’ experience, one can say that the tax to GDP also increases and more so when you are developing, with the pace of increase in taxes more than the GDP. We are on a marathon and the target is to keep improving. But there’s miles to go,” he said. 

On the modest revenue growth projections for 2024-25, he said, “One can’t expect the same revenue buoyancy every year. From a 1.4 buoyancy this year, we are projecting a 1.1 buoyancy. As nominal GDP growth is expected to rise 10.5%, tax revenues are expected to grow at 11.5%.”

While the Department of Revenue is not examining lapses at Paytm Payments Bank, the Enforcement Directorate steps in whenever there are issues of money laundering, and they do their job if the law is flouted, the Secretary said.