You need to be careful about the estimates, it is natural to confuse tax exemptions with tax evasion. Indias tax-to-GDP ratio hasnt gone up as dramatically as it should have after the 1991 reforms; as compared to 15.4% in 1990-91, it was just 16% in 2009-10, after rising to 17.6% in 2007-08. That is poor, but doesnt necessarily mean tax evasionadd the tax-exemptions of 7.2% of GDP that the budget papers give, and thats a tax-GDP ratio of 23.2%. Many think the tax-exemption number is overestimated. If you assume a figure of half, thats still a tax-GDP ratio of 19.6%. Keeping in mind agriculture income (16% of GDP) is not taxed, nor is the small scale sector (10% of GDP), thats an effective tax-GDP rate of 26.5%. Once you take into account the exemptions given for various services, railways and so on, the effective tax is much higherthis would suggest the 50% black economy estimates include large parts of the tax-exempt economy as well. The average tax-GDP ratio for China is 17% and 35% for OECDgenerally, the richer a country, the greater the formal sector, and the easier it is to tax it.
If you look at the individual components of taxation, corporate tax-GDP is up dramatically, from 1.7% of GDP in 2000-01 to an estimated 4% in 2011-12; excise duties are down from 3.3% to 1.8; service tax levies are just 0.9% of GDP, suggesting good potential, given that the sector accounts for 60% of GDP.
Amnesty schemes, the usual way to catch black money, are never quite the silver bullet they appear. The most successful amnesty, VDIS 1997, unearthed R33,697 crore (2.2% of that years GDP) of black money and gathered R9,729 crore of tax but the tax-GDP ratio fell after that year. The rise in corporate tax-GDP ratio suggests the way to tackle black money is to encourage formalisation of the economy (organised retail and radio-cabs, for instance, to replace kiranas and black-and-yellow taxicabs that dont pay taxes) as this is how tax-GDP ratios riseraising the tax-GDP ratio by just 0.1, from 16 right now, will fetch the R10,000 crore got from VDIS 1997, underscoring the point that raising tax-GDP ratios is a lot more critical in the fight against black money.