In a boost to India’s economic credentials, the country’s tax-to-GDP ratio has surged to 19.6 percent, eclipsing that of Hong Kong, Malaysia, and Indonesia. Bank of Baroda’s latest report paints an optimistic picture of the nation’s tax administration overhaul.
This comprehensive metric, blending central and state collections, demonstrates marked improvements in tax efficiency across the board. Though central gross tax revenue lingers at 11.7 percent of GDP, states’ contributions have been instrumental in pushing the aggregate higher, fueled by better compliance nationwide.
The progress is especially noteworthy amid global comparisons. India’s figure remains below advanced nations like Germany’s 38 percent or America’s 25.6 percent, yet it signals untapped potential, amplified by a young demographic dividend.
Policymakers are aggressively pursuing reforms via simplification and digital tools. Anticipated measures, such as the 2025 Income Tax Act and corporate tax easing, aim to enhance transparency and reduce compliance burdens.
Effective from April 2026, these changes could draw informal sectors into the tax net, broadening the base significantly. Time-series analysis confirms that tax revenues are increasingly syncing with nominal GDP expansion.
Notably, personal income taxes correlate robustly with per capita income growth and adherence levels, while corporate collections thrive on profit surges, maintaining vigor against historical benchmarks. This positions India for accelerated fiscal consolidation.