- February 13, 2021
- Posted by: OptimizeIAS Team
- Category: DPN Topics
Context: the finance secretary said the revised estimates of revenue and expenditure for the current fiscal were realistic and tax buoyancy expectations are realistic.
- Tax buoyancy explains relationship between the changes in government’s tax revenue growth and the changes in GDP.
- It refers to the responsiveness of tax revenue growth to changes in GDP.
- When a tax is buoyant, its revenue increases without increasing the tax rate.
- A similar looking concept is tax elasticity. It refers to changes in tax revenue in response to changes in tax rate.
Tax buoyancy depends mainly on
- Size of the tax base
- Tax administration regime
- Reasonableness and simplicity of the tax rates
- Wealth creation
- Tax buoyancy was fairly moderate between 1 and 1.3 in 4 of 7 years between 1991-92 and 1997-98 and was poor in the remaining 3 years
- During the 2004-05 to 2008-09 period, the first 4 years recorded tax buoyancy between 1.3 and 1.7, a creditable performance.
- In the fifth year (2008-09), there was a sharp fall in tax buoyancy to about 0.2.
- The 2014-19 period saw steady performance in tax buoyancy.