The Tax System in India: Could Reform Spur Growth?

24 Pages Posted: 17 May 2006

See all articles by Hélène Poirson

Hélène Poirson

International Monetary Fund (IMF) - Research Department

Date Written: April 2006

Abstract

This paper assesses the effects of India's tax system on growth, through the level and productivity of private investment. Comparison of India's indicators of effective tax rates and tax revenue productivity with other countries shows that the Indian tax system is characterized by: (1) a high dependence on indirect taxes, (2) low average effective tax rates and tax productivity, and (3) high marginal effective tax rates and large tax-induced distortions on investment and financing decisions. The paper finds that the most recently proposed package of reforms would improve tax productivity and lower the marginal tax burden and tax-induced distortions. But firms that rely on internal sources of funds or face problems borrowing would continue to face high marginal tax rates.

Keywords: Growth, Tax Policy, Tax Reform

JEL Classification: E62, H20, O40

Suggested Citation

Poirson Ward, Helene, The Tax System in India: Could Reform Spur Growth? (April 2006). IMF Working Paper No. 06/93, Available at SSRN: https://ssrn.com/abstract=902760

Helene Poirson Ward (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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