Mind the tax gap: India's is smaller than peers', but comparisons mislead

Many of the studies in the latter approach combine data from all types of countries to obtain an estimate of potential revenue

Fiscal policy discussions in India have consistently emphasised the need to raise the country’s tax-to-gross domestic product (GDP) ratio. The analysis in this context follows two distinct lines of reasoning. Given the articulated need for an expanded role of the government in a developing country like India, a higher tax-to-GDP ratio is argued to be desirable. Policy prescriptions here focus on identifying new sources of revenue and reducing or eliminating exemptions and concessions. The other line of argument focuses on measuring the “tax gap” — the difference between potential revenues and actual collections. Policy options in this approach include improving