With reference to the “Tax-to-GDP” ratio of India, which of the following statements is/are correct? 1. Higher the tax to GDP ratio the better financial position the country will be in. 2. India’s Tax-to-GDP ratio is higher than the average OECD Tax-to-GDP ratio. Select the correct answer using the codes given below:

[A] 1 only

[B] 2 only

[C] Both 1 and 2

[D] Neither 1 nor 2

Answer: A

Notes:

Tax-to-GDP ratio represents the size of a country’s tax kitty relative to its GDP.

It is a representation of the size of the government’s tax revenue expressed as a percentage of the GDP.
Higher the tax to GDP ratio the better financial position the country will be in.
The ratio represents that the government is able to finance its expenditure. A higher tax to GDP ratio means that the government is able to cast its fiscal net wide.
It reduces a government’s dependence on borrowings.
Although India has improved its tax-to-GDP ratio in the last six years, it is still far lower than the average OECD ratio which is 34 per cent.
India’s tax-to-GDP ratio is lower than some of its peers in the developing world.
Developed countries tend to have higher tax-to-GDP ratio.

Source: The Hindu