The term “tax buoyancy” refers to how tax earnings change in response to changes in the gross domestic product (GDP). In India, tax buoyancy is a key factor in figuring out how long the tax system will last and how well it will work. It shows that the tax system is able to bring in more money without raising tax rates.
India’s tax balance has changed over the years because of many different things. In the past, the country’s tax buoyancy has been low, which means that the country’s income hasn’t changed much with the growth of the economy. People say that this is because there is a big unorganized sector, a lot of tax evasion, a complicated tax system, and inefficient administration.
But in the past few years, India has done a number of things to improve tax stability. The Goods and Services Tax (GST), which started in July 2017, was a big step toward making taxes easier to understand and easier to follow. GST took the place of several indirect taxes, making one tax system for the whole country. With the help of this change, the tax base has grown and tax buoyancy has gone up.
Also, steps to make the economy more official, like getting rid of cash and passing the Real Estate (Regulation and Development) Act, have helped boost tax buoyancy. These steps have cut down on black money and tax fraud, making it easier for people to pay their taxes and bringing in more money.
Tax buoyancy has also been helped by the focus of the government on digitalization and the use of technology in tax management. Initiatives like e-assessment and online tax filing have made it easier to pay taxes, cut down on cheating, and increased the amount of money collected.
Tax buoyancy has also been helped a lot by the return of economic growth and the increasing formalization of the economy. As the economy grows, tax receipts tend to grow at a faster rate because more money is being spent, saved, and earned.
In conclusion, India’s tax buoyancy has gotten better over the past few years thanks to fundamental changes like the adoption of GST, the formalization of the economy, and tax administration that is driven by technology. These steps have helped make more people pay their taxes, spread the tax base, and bring in more money. But ongoing work is needed to improve tax buoyancy, such as making the tax system easier to understand, making tax management stronger, and encouraging economic growth.