Budget 2025: Tax-to-GDP Ratio Rises, Declining Tax Buoyancy Raises Concerns

Declining tax buoyancy reveals a mismatch between tax revenue and economic growth, raising concerns about long-term fiscal sustainability despite an increase in net direct tax collections and a higher tax-to-GDP ratio

With Finance Minister Nirmala Sitharaman slated to present the Union Budget 2025 on February 1st, recent estimates reveal net direct tax collections exceeding last year’s projections by ₹80,000 crore. Enhanced compliance and tech-driven tax filing have contributed to a higher tax-to-GDP ratio of 6.64%. However, a declining tax buoyancy factor signals a disconnect between economic growth and tax revenue, raising concerns about structural imbalances and the sustainability of fiscal strength. The upcoming budget must address these challenges to ensure robust tax collection and balanced economic growth.

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