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Direct Tax-GDP Ratio

Direct Tax-GDP Ratio:

Direct tax-GDP ratio rose to 15-year high in FY-2023.

  • Direct tax-to-GDP ratio, rose to a 15-year high of 6.11 per cent in the financial year 2022-23, time-series data released by the Central Board of Direct Taxes (CBDT) under the Ministry of Finance.
  • Tax-GDP ratio measures how much tax is collected in relation to the country’s GDP.
  • It reflects the share of taxes in the overall output generated in the country.
  • The tax-GDP ratio is used to determine how well the government controls a country’s economic resources.
  • The tax-to-GDP ratio measures the size of a country’s tax revenue compared to its GDP.
  • The higher the tax-to-GDP ratio, the better the country’s financial position.
  • The direct tax-to-GDP ratio is the ratio of direct tax collected compared to national gross domestic product (GDP).
  • Direct Tax is a tax levied directly on a taxpayer’s income, profit or revenue who pays it to the Government and cannot pass it on to someone else.
  • Due to an increase in direct tax revenues, the State can spend on national security, welfare system, public goods, etc.
  • The borrowing can be reduced and the fiscal deficit be reduced.
  • Higher tax collections increase the capacity of the government to incur expenditure for welfare schemes.
  • There will be decreased dependence on indirect taxes which are regressive in nature.
  • There will be a decrease in social inequality.