Q. 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 

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