Question 11GS3GS3

The Tax to GDP ratio in India is close to 17% of GDP where the tax leveraging is as low as 1.9.

Main Body

Factors contributing to low Tax compliance in India: 1) Large - scale exemptions eg: 2 out of 6 or MSMEs are below 40 lakh exemption under GST 2) Decline in savings rate as well as investments eg: Household savings reached 8 yrs low of 18% 3) Prevalence of Base Shifting and Profit evasion eg: Mauritius shift by companies 4) Low income and exemption from income tax eg: Recent budget exemption increased to 5) Online compliance mechanism for better Transparency 6) Following the Laffer curve Tax collection Tax Rate

There is a need to simplify and rationalize the direct tax regime with initiative like Direct Tax Assessment to leverage the system for financing the fiscal deficit. Ways to Improve Direct Tax Collection: 1) Presumptive taxation (Economic Survey)French and British model eg: Startups used TIN ID for digital payment also 2) Usage of common financial ID for all transactions eg: Dravid used TIN ID for digital payment also 3) Rationalization of multiple direct taxesinto single tax 4) Increase in wealth tax for high net worth individuals of India eg: UK taxes 25% while India 35% 5) Online compliance mechanism for better Transparency 6) Following the Laffer curve There is a need to simplify and rationalize the direct tax regime with initiative like Direct Tax Assessment to leverage the system for financing the fiscal deficit.

226 words1 paragraphs

Conclusion

There is a need to simplify and rationalize the direct tax regime with initiative like Direct Tax Assessment to leverage the system for financing the fiscal deficit.

27 words

Diagram

Laffer curve diagram showing tax collection on y-axis and tax rate on x-axis, with an inverted U shape

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Page 24

Topper

ADITYA TALWAR

AIR 2702025

Subject & Paper

GS3GS3

Topic

Economic Development

Taxation

Tax to GDP ratio and compliance issues

Writing Stats

253

Total words

Paragraphs

analytical

Tone