Tax Revenue Gap in India – Data and Reality
By Surjit Bhalla and Karan Bhasin

The near-universal conventional wisdom in India is that the country has a significant tax revenue gap, meaning India’s tax collection is too low relative to its needs and potential. Some argue that India may be lagging by about 7 percentage points of GDP.

Important cross-country data released by the IMF in 2021 can provide insights into the nature and magnitude of this tax gap. The IMF offers data by tax category for over 170 countries over the past two decades. These data cover all levels of government—central, state, and local—and are therefore an ideal resource to assess and compare the nature and magnitude of our presumed tax gap.

This lecture will examine the revenue implications of the substantial 2019 corporate tax cut in India (from 30% to 22%).

• Surjit S. Bhalla

Surjit S. Bhalla  is the former Executive Director for India, Sri Lanka, Bangladesh, and Bhutan at the IMF (November 2019 – October 2022). He served as a part-time member of Prime Minister Narendra Modi’s First Economic Advisory Council (2017-2018) and has been involved in several government committees, including as Chairperson of the High-Level Advisory Group on Trade (2018-2019) and as a member of the RBI Capital Account Convertibility Committees in 1999 and 2006.

Arbind Modi has over 42 years of cross-country experience in supporting tax reform across all major taxes. His expertise includes analysing and shaping tax policies, crafting medium-term revenue strategies to enhance domestic resource mobilisation, drafting tax legislation, modernising tax administration, enforcing tax laws, and strengthening institutional capacity for tax policy and administration reforms. As the head of both the Tax Policy and Legislation Division and the Tax Policy Research Unit in the Ministry of Finance, Government of India, he played a pivotal role in formulating tax policies and implementing changes in over ten national budgets. He also contributed significantly to the rewriting of the Income Tax Act and the conceptualisation of the Goods and Services Tax in India. Throughout his career, he worked closely with various tax reform committees and was involved in numerous technical assistance missions on tax reforms conducted by the IMF, International Finance Corporation, and The World Bank in countries including India, Kenya, Rwanda, Ethiopia, Sierra Leone, Gambia, Mozambique, Nepal, Kazakhstan, Uzbekistan, Bangladesh, Tunisia, and the East African Community (EAC).

Arbind Modi holds a postgraduate degree in Economics from Delhi University, a master’s in Public Administration from the John F. Kennedy School of Government, and a diploma in International Tax Programme from Harvard Law School. He is currently a short-term consultant for the IMF and the World Bank following his retirement as Senior Economist, Tax Policy Division, IMF.

• Montek Singh Ahluwalia

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