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India's tax-to-GDP ratio is 15 per cent (of which the Centre's share is 10 per cent). Before the financial crisis of 2008, it was 17.7 per cent (of which 12 per cent was central taxes). Compare that with the ratio in other countries. Among economies that are poorer than India, Bangladesh has a tax-to-GDP ratio of just 8.5 per cent, and Pakistan 10.2 per cent. Vietnam is at 15 per cent (these and other numbers have been compiled by the Heritage Foundation). As you go up the income ladder, the tax ratio climbs because it is non-subsistence incomes that are taxed. But even richer countries have lower or comparable tax ratios. Indonesia's, for instance, is as low as 11 per cent, and the Philippines' at 14.4 per cent. A much wealthier country like Malaysia has a ratio of 15.5 per cent, while Thailand is at 17 per cent. All these members of the Association of Southeast Asian Nations have higher per capita incomes than India, so their capacity to bear a higher tax burden is naturally greater. China, with a per capita income that is more than three times India's, and which is supposedly Communist, has a tax-GDP ratio of just 17 per cent. Looking at these countries and then at India's tax ratio, it is clear that we are not an under-taxed nation.
The problem in India is not with rates; it is with coverage. Hence the familiar criticisms — only 35 million pay income tax, a service economy which accounts for more than half of GDP delivers less than one per cent of GDP as tax, and so on
From that perspective, the most important way of getting more tax revenue is to introduce a comprehensive goods and services tax, which will plug many loopholes. The other way is to use information networks to detect evasion. For instance, nearly half of the income tax collection comes from just two per cent of taxpayers (715,000 people who report a taxable income of Rs 8 lakh or more). Yet, household surveys show that the number in that income bracket should be twice as large. If they could be traced, imagine what it would do to tax revenue
T N Ninan: A fully taxed nation
The problem in India is not with rates; it is with coverage. Hence the familiar criticisms — only 35 million pay income tax, a service economy which accounts for more than half of GDP delivers less than one per cent of GDP as tax, and so on
From that perspective, the most important way of getting more tax revenue is to introduce a comprehensive goods and services tax, which will plug many loopholes. The other way is to use information networks to detect evasion. For instance, nearly half of the income tax collection comes from just two per cent of taxpayers (715,000 people who report a taxable income of Rs 8 lakh or more). Yet, household surveys show that the number in that income bracket should be twice as large. If they could be traced, imagine what it would do to tax revenue
T N Ninan: A fully taxed nation
