Impact of Changing Scenario of Taxation in India on Tax Revenue and GDP

Abstract

Tax revenue is the part and parcel for the growth of Indian economy. India has a well developed tax structure with a three-tier federal structure, comprising of the Union Government, the state governments and the urban/rural local bodies. The power to levy taxes and duties is distributed among the three - tiers of governments, in accordance with the provisions of the Indian Constitution. The Government of India has been trying to improve the taxation provisions since last many years; tax reform initiatives have produced impressive results. The Center's Tax-GDP ratio has increased to 11.5 per cent in 2008-09 from a low of 9.2 per cent in 2003-04. The healthy growth in tax revenues over the last five years is essentially attributed to growth in direct taxes. The objectives of present study is to examine the impact of tax revenue on India's GDP and to analyze the developments in taxation and impact on tax revenue of various developments. For the purpose of the study we have considered tax revenue percentage in GDP and tax revenue collected by the central government for the five consecutively financial years, i.e. from 2002-03 to 2007-08. Data have been collected from Indian Economic Survey Report, 2008-09. We fou nd that despite recession in Indian economy the center's tax GDP percentage has increased 46 in financial year 2008-09 (BE) from a low percentage of 6.5 in the financial year 2002-03 and both direct and indirect tax have registered continuous growth in tax revenue. It may be concluded that despite several amendments and developments in both direct and indirect taxes, impact is positive on the India's GDP and tax revenue collection.