New Delhi: India’s tax-to-GDP ratio has risen to 19.6 percent, surpassing several emerging market economies such as Hong Kong, Malaysia, and Indonesia, according to a report by Bank of Baroda.
A higher tax-to-GDP ratio indicates improved tax efficiency and better revenue collection in the country. This figure includes tax collections by both the central and state governments.
The report highlights that although India’s central gross tax revenue stands at 11.7 percent of GDP, the overall integrated figure reflects strong participation from states and enhanced compliance across the system.
However, India’s tax-to-GDP ratio remains significantly lower than countries like Germany, which has 38 percent, and the United States at 25.6 percent. The Bank of Baroda noted that given India’s favourable demographic profile, this gap presents a major policy opportunity.
The government is currently focusing on comprehensive tax reforms aimed at simplification, rationalisation, and digitisation. These measures are expected to boost the tax-to-GDP ratio further in the coming years.
Key regulatory steps, including the introduction of the Income Tax Act, 2025, and simplification of corporate tax structures, are expected to improve transparency and ease of compliance.
The new Income Tax Act, effective from April 1, 2026, is anticipated to bring a larger segment of the informal economy into the formal tax system, thereby broadening the tax base.
Historical analysis in the report shows a growing correlation over time between tax collection and nominal GDP. It also reveals a strong link between income tax revenue and both nominal GDP and per capita income, reflecting rising incomes and better compliance.
Corporate tax collections have benefited from improved corporate profitability, maintaining strength compared to historical trends.
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