The reform of tax policy has a big role in India’s Viksit Bharat journey

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Subscribe to enjoy similar stories. As we embark on our journey to achieve the vision of ‘Viksit Bharat by 2047,’ there is little doubt that tax policy will play a key role in realizing it. This is not just from the perspective of funding higher levels of public expenditure that becoming a developed country will entail, but also in terms of the impact it will have on the investment and economic growth needed to help us achieve this vision.

A developed India must have well-drafted and comprehensive tax laws, a taxpayer-friendly yet robust tax administration, a strong culture of compliance among taxpayers and effective dispute prevention and resolution mechanisms. From a quantitative perspective, our tax-to-GDP ratio will have to be much higher, perhaps as much as 30%, as India’s revenue secretary recently said. We currently have a tax-GDP ratio of about 18% (counting both central and state taxes).

To put this in perspective, China and the US have a ratio of about 21% and 25%, respectively. Achieving this economic goal will not be easy, since many tools that other countries deploy to boost compliance and collections have already been tried in India with varying degrees of success. Widening the tax base by phasing out exemptions and deductions may not help, since there are few exemptions and deductions left today.

Similarly, the scope of tax deducted at source (TDS) and tax collected at source (TCS) have already been expanded to a point where they cover virtually all payments. So, what can be done on the tax front to enable a Viksit Bharat? To start with, there must be a significant and sustained push for greater formalization of the economy. Some estimates suggest that India’s informal economy could be as large as 30% of