Before going ahead in this blog let’s first know the basics mentioned in this content. The tax-to-GDP ratio is defined as a measure of any nation’s tax revenue relative to the size of its economy. It indicates the government’s tax revenue in the percentage of GDP. We can say that the tax to GDP ratio is the barometer to judge the country’s tax buoyancy is whether strong.
Through the study, it was found that India’s gross tax-to-GDP ratio is around 11% that was far below the average of around 34% of OECD countries. Despite the aggressive approach of Indian Government to increase, India’s tax to GDP ratio is almost stagnant and falls between 10-11% since last 5-6 years. The direct tax contributes to 55% of the total tax collection of India and the rest is indirect tax collection. Hence to increase the tax GDP ratio Government concentrate was on increasing the taxpayers' indirect tax and introduces GST in indirect taxes. Though, these efforts don’t show the expected results. The results show that by increasing the taxpayer's rates the tax GDP ratio can’t be increased to that help as India is an agricultural-based country in which the income is tax-free and also the a huge population is under 18 and around the line of poverty that doesn’t contribute to the exchequer.
There can be various approaches that help the Government of India to increase the tax GDP ratio and these are:
Recognition of honest and high taxpayers- Income tax department had come with a scheme “Certification of appreciation” under which the certificates are conferred to the taxpayers. The general public is not aware of such a scheme. It should be publicised so that the public will be aware and motivate people to pay the tax. Such people can be made the guest of honor or chief guest in the public program so that it encourages others too.
Social security scheme for taxpayers- Government should come out with social security schemes for the general compliment to taxpayers that they are not getting anything in return and their hard-earned money is not wasting. This scheme emphasizes the tax the payer that they will be allotted a specific account in which a portion of their tax payment is credited every year by the government.
Cashback for retail customers- The government can evolve a scheme where retail bills can be cross verified with the sales of retailer and it shall encourage him to pay through online banking channel and cashback be allowed to him on monthly basis. This will make it difficult to that retailer to evade such sales.
These are some of the approaches that the government can emphasize to increase tax to GDP ratio and there may be other such approaches that one can find too that will help out in increment of the ratio.