India’s tax-GDP ratio has plateaued near 11-12%, well below OECD average. Discuss the structural reasons and evaluate the post-GST direct and indirect tax reform agenda.
Subtopic: Economy · Mobilisation of resources
How to structure your answer
Introduction: Combined Centre-State tax-GDP ratio ~17-18%; Centre alone ~11.7% (Economic Survey 2024-25); OECD average ~34%.
Body: 1) Narrow direct tax base — ~8 crore filers, less than 2 crore pay. 2) GST structure — rate rationalisation pending; cess sunset. 3) Compliance leakages, exemptions, exclusions (petroleum, real estate).
Way forward: GoM on GST rate rationalisation under GST Council Article 279A; Direct Tax Code roll-out; widen TDS net and use AIS-based nudges by CBDT.
Written within the word limit
135 words · target 150 words · 9 min
Introduction: India's gross tax-GDP ratio stood at 11.7% in 2024-25 (Economic Survey 2024-25), below the OECD average of 34% and the BRICS average of 21%, reflecting a narrow base and high informality.
Body: Structural reasons include 93% informal employment (PLFS 2023-24), agricultural income exemption under Article 366, and tax-foregone of ₹5.7 lakh crore (Receipts Budget 2025-26). Post-GST, indirect collections crossed ₹20 lakh crore in 2024-25 with GST Compensation Cess and e-invoicing for ₹5 crore turnover firms. Direct-tax reforms — new regime under Section 115BAC, faceless assessment, ₹12 lakh exemption in Budget 2025-26 — widened the filer base to 9.4 crore (CBDT). Yet the personal income-tax base remains under 6% of population and corporate effective rate (22% concessional) has compressed buoyancy.
Way forward: The CBDT should bring petroleum and electricity into GST by 2027 and operationalise the Direct Tax Code under the Vivad se Vishwas 2.0 timeline to lift tax-GDP to 13% by 2030.
What an examiner expects to see
- Centre's gross tax revenue ~11.7% of GDP (Economic Survey 2024-25)
- Direct tax buoyancy >1 since FY22; corporate tax cut 2019 to 22%
- GST 101st Constitutional Amendment Act 2016
- GST Council — Article 279A, three-fourths weighted vote
- Compensation cess sunset and GoM-led rate rationalisation
- Petroleum and real estate outside GST
Concrete cases, schemes and judgments
- GST Council 53rd-55th meetings on rate rationalisation
- Faceless Assessment scheme CBDT 2020
- Annual Information Statement (AIS)