Experts on Thursday differed on whether India is optimally utilising its potential for tax revenue generation, given the need for more widespread and efficient delivery of public services.

India’s tax-to-GDP ratio is “definitely” not low, rather “well above” where it should be, when compared to other middle-income economies, said Surjit Bhalla, former member of PM-Economic Advisory Council (PM-EAC). Speaking at an event organised by the Centre for Social and Economic Progress, he said: “Middle-income countries, and fast growing economies have much lower tax-to-GDP ratio… we tax too much!”

However, noted tax policy expert, and former member of the Central Board of Direct Taxes (CBDT) Arbind Modi stressed that when compared with the potential – of 20-25%% – the country’s tax-GDP ratio is low. Majority of the income tax assessees don’t pay any tax, even as they file their returns. He also said an effort should be made to tax agriculture income above a threshold.

In a recent interview to FE, Modi had noted that that there has been an increase in the “tax gap” over the years since the cpountry’s tax potential has increased faster than the tax effort measured by the tax-GDP ratio. “With an estimated tax potential of 25% of GDP for 2023-24 and tax-GDP ratio (Centre and States) of 18%, the tax gap is around 7% of GDP as against 5.4% in 2017-18,” he had said. He added that tax-GDP ratio for developed and manufacturing states like Andhra Pradesh, West Bengal, Punjab, Kerala, Telangana, Maharashtra, Tamil Nadu, Karnataka, Haryana and Gujarat, is significantly below the critical minimum of 15% of GDP required to provide necessary public services.

India’s per capita GDP in 2023 stood at $2,484, according to the World Bank. According to the bank, tax-to-GDP ratio of above 15% is a “key factor” for economic growth and “poverty reduction”.

Revenue Secretary Sanjay Malhotra, last week, had said that India’s tax-to-GDP ratio, given the level of development, is not low. “We are slightly above what our per capita income indicates,” he had said, while adding that the tax base would increase as more formalisation takes root.