Tax-to-GDP Ratios in India and Comparative Analysis

Discussions on India's tax-to-GDP ratios often involve comparing the country's performance with other nations. This comparison uses statistical tools like the stochastic frontier analysis, as seen in the World Bank's South Asia Development Update, 2025. The analysis suggests that India's tax gap is comparable to other Emerging Markets and Developing Economies, assuming tax collections depend on structural features of economies.

Identifying Drivers of Increased Tax-to-GDP Ratios

An alternative approach examines countries that reported significant increases in their tax-to-GDP ratios over a period, identifying drivers behind such improvements. Using OECD data, countries excluding small island nations and oil-rich countries showed an increase of over 9% between 2000 and 2022. This trend indicates a global concern for raising tax revenue mobilization.

Case Studies: Countries with Increased Tax-to-GDP Ratios

• Nicaragua: Consistent increase over the period.
• Georgia, Morocco, Kyrgyzstan: Maintained higher levels post-global financial crisis.
• Japan, Tunisia, Korea: Growth during and after the global financial crisis.

These countries employed various tax reforms to expand the tax base, with different taxes contributing to growth.

Sources of Increase in Tax-to-GDP Ratios

• Social Security Contributions: Notable increases in six out of eight countries.
• Goods and Services Taxes: Includes VAT, customs duties, and excises.

In India, including social security contributions in tax collections could improve tax-to-GDP optics but not available resources.

Conceptual Questions on Social Security and Tax Compliance

The existence of a government-guaranteed social security system might improve state-citizen relations. However, a survey by Vidhi Legal indicates that less than half of the people believe tax money is well-utilized, suggesting a need for better linkage between taxes and perceived benefits to enhance compliance.