Direct Tax-to-GDP Ratio of India in FY23 Highest in 15 Years

The Central Board of Direct Taxes has released a report indicating that India's net direct tax collections have increased by 160.52% from ₹6,38,596 crore in 2013-14 to ₹16,63,686 crore in 2022-23.

India’s Direct Tax-to-GDP (Gross Domestic Product) Ratio

India's direct tax-to-GDP ratio, which indicates the proportion of taxes in the country's overall economic output, reached a 15-year high of 6.11 percent at the end of the financial year 2022-2023. This figure is higher than the previous highest direct taxes-to-GDP ratio of 6.3 percent recorded in 2007-08.

• A low tax-to-GDP ratio implies that a substantial part of the country's economic activity is not taxed and there are fewer contributors to the tax revenue. 
• To promote development and build an effective state, it is generally agreed that increasing taxes as a share of GDP is crucial. 
• However, a significant challenge in achieving this is the high level of non-compliance in the tax system.

About CBDT

The CBDT is a branch of the Department of Revenue that operates under the Ministry of Finance. 

• Its main responsibilities include providing crucial inputs for policy and planning of direct taxes in India as well as administering direct tax laws through the Income Tax Department. 
• The Central Board of Direct Taxes is a legal authority that functions under the Central Board of Revenue Act, 1963. 
• The officials of the Board, in their ex-officio capacity, also work as a Division of the Ministry that deals with matters related to the levy and collection of direct taxes.

Direct taxes

• Direct taxes are those taxes that are levied directly on individuals or corporate institutions. Income tax is the most common form of direct tax. 
• The central government levies several types of direct taxes in India, such as income tax, corporate tax, capital gains tax, securities transaction tax (STT), dividend distribution tax (DDT), gift tax and estate tax.

Indirect taxes

• Indirect taxes are the taxes imposed on products or services when they are bought or sold. 
• Unlike direct taxes, the government collects these taxes from the seller, not from an individual's income. Examples of indirect taxes include customs duty and security transaction tax.

On 1st July 2017 the Goods and Services Tax (GST) was implemented in India. It has replaced almost all indirect taxes as a single, pan-India indirect tax.