Does india levy too much tax compared to other countries?
India's tax system has been a topic of discussion for many years, with people often expressing their displeasure over the tax burden. When Finance minister Nirmala Sitharaman presents the budget for the financial year 2025-26, the middle class burdened by inflation and tax will have great hopes of relief this time. The question is whether india levies too much tax compared to other countries.
How is India's tax structure?
India's tax system is mainly divided into two parts. Direct and indirect taxes. Direct taxes include income tax, corporate tax and property tax, while indirect taxes include Goods and services Tax (GST), excise duty and customs duty. The indian government is heavily dependent on tax revenue to meet its expenses. About 80% of the central government's expenses are funded by taxes. Such a huge dependence is much higher than many economies such as Brazil, Mexico and China.
How much tax revenue as a share of GDP?
The most important metric to assess a country's tax system is the total tax revenue as a percentage of its gross domestic product (GDP). As per available data, India's total tax revenue is lower than many developed countries. While developed countries are able to collect more than 30% of GDP, India's tax revenue remains less than 20%. This shows that the government, despite relying heavily on taxes for its income, is struggling to effectively expand the scope of its tax base.
Where does india stand compared to the world?
To understand India's position vis-à-vis the world, it is necessary to compare its tax revenue with other countries relative to their GDP per capita. Statistics show that as countries become richer, their governments are able to collect more taxes as a percentage of GDP. In this context, india lags behind not only developed countries like the US but also emerging economies like China. While india collects a certain percentage of its GDP through taxes, countries like france and germany have much higher tax revenues despite having similar per capita income levels. This disparity shows that older and established economies are more efficient in raising revenues.
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