India’s combined tax-to-GDP ratio has reached 19.6 per cent, placing the country at par with several major global economies and highlighting steady progress in tax collection efficiency
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NEW DELHI — India’s combined tax-to-GDP ratio has reached 19.6 per cent, placing the country at par with several major global economies and highlighting steady progress in tax collection efficiency, according to a report by Bank of Baroda.
The ratio includes both central and state tax collections and is higher than that of several emerging markets such as Hong Kong, Malaysia and Indonesia.
The report noted that while India’s central gross tax revenue stands lower at 11.7 per cent of GDP, the overall integrated figure reflects stronger participation by states and better compliance across the system.
However, India still trails advanced economies such as Germany, which has a tax-to-GDP ratio of around 38 per cent, and the United States, where the ratio is about 25.6 per cent.
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Bank of Baroda said this gap presents a major policy opportunity for India, especially given its favourable demographic profile.
The report highlighted that the government is increasingly focusing on comprehensive tax reforms aimed at simplification, rationalisation and digitisation.
These efforts are expected to push the tax-to-GDP ratio higher in the coming years.
Key regulatory steps, including the introduction of the Income Tax Act, 2025, and the rationalisation of corporate tax structures, are expected to improve transparency and make compliance easier.
The new Income Tax Act, scheduled to come into effect from April 1, 2026, is also expected to widen the tax base by bringing more of the informal economy into the formal system.
The report’s historical analysis shows that tax collections and nominal GDP have started moving more closely together over time.
Between FY93 and FY02, this relationship was volatile due to a narrow tax base. However, from FY14 onwards, a clear convergence has emerged, becoming more pronounced from FY23.
Current data suggest that tax elasticity is around 1.1, which is higher than the long-term average. This indicates that tax collections are growing faster than the economy.
The report also found a strong positive link between various tax components and macroeconomic indicators.
Income tax collections show a strong correlation with both nominal GDP and per capita income -- reflecting rising incomes and better compliance.
Corporate tax collections have also benefited from improved profitability among companies, with buoyancy levels remaining strong compared to historical trends.