Consider the following statements regarding tax to GDP ratio in India: 1. A decrease in tax to GDP ratio of a country may indicate a slowing economic growth rate. 2. Tax to GDP ratio is about 11.1% in Financial Year 23 which includes Direct Taxes at 6 percent and Indirect taxes at 5.1 percent. Which of the statements given above is/are correct? |ForumIAS

Q. Consider the following statements regarding tax to GDP ratio in India:
1.A decrease in tax to GDP ratio of a country may indicate a slowing economic growth rate.
2.Tax to GDP ratio is about 11.1% in Financial Year 23 which includes Direct Taxes at 6 percent and Indirect taxes at 5.1 percent.
Which of the statements given above is/are correct?

[A] 1 only

[B] 2 only

[C] Both 1 and 2

[D] Neither 1 nor 2

Answer: C

Notes:

Explanation: Tax to GDP ratio: Tax to GDP ratio is the ratio of the tax revenue (direct &indirect tax) of a country compared to the country’s GDP.

Tax to GDP ratio is about 11.1% in FY23 which includes Direct Taxes at 6% and Indirect taxes at 5.1%.
It is a useful measure of a country’s capacity to generate tax revenue with rest to the size of its economy.
A decrease in tax to GDP ratio of a country may indicate a slowing economic growth rate.

Source: FORUMIAS

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