Tax Buoyancy

Context 

• The tax buoyancy in Goods and Services Tax (GST) revenues poses a concern.

About 

• For this, the ministerial panel to be constituted under the GST Council is likely to also carry out a review of the key tax slabs under the indirect tax regime. 
• This will be in addition to rate rationalisation, correction of inverted duty structure, re-look at exemptions, e-way bill systems, e-invoices, FASTag data and other technological measures, which would be reviewed by the ministerial panels as part of its broader revenue augmentation mandate.

What is Tax Buoyancy?

• Tax buoyancy explains this relationship between the changes in the 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.
• Determining factors:
  • Tax buoyancy depends largely on –
  • the size of the tax base
  • the friendliness of the tax administration
  • the reasonableness and simplicity of the tax rates

Source:IE