Income-tax collections are higher than at any point on record going back to at least 1979-80. These taxes, primarily paid by individuals, were equivalent to 3.35 per cent of gross domestic product (GDP) in 2023-24. This is higher than corporation tax, which was 3.12 per cent, aided by a 2019 government move lowering rates to encourage investment (Chart 2).
The calls for similar relief on personal taxation, even though India has lower government revenues than peers, and limited spending (Charts 3, 4). This has implications in a country with high inequality (Chart 5), where taxes can act as a means of redistribution.
A Business Standard analysis of tax-to-GDP ratios across countries shows India collects as much tax (ratio of 17.1 per cent) as the median lower-middle-income country (16.7 per cent). More advanced high-income and upper-middle-income countries, which tend to have better capacity for tax collections as well as richer citizens, show median tax-to-GDP ratios, ranging from 18-20 per cent.
A past economic survey (2015-16) had noted the importance of the government focusing on providing better basic services rather than redistribution to avoid a Hirschman exit of the middle-class. It had suggested that more people could be slowly brought into the taxable brackets by keeping brackets unchanged. Improved government delivery, meanwhile, could help the middle-class feel it is getting its money’s worth. Numbers already show the rise in returns filed above the Rs 5 lakh mark (Chart 6).
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