Tax Buoyancy

Recently, the Finance Minister presented fiscal consolidation projections that surpass expectations for the current financial year and Budget Estimates (BE) for the next year, despite the conservative tax buoyancy in the estimates.

What is Tax Buoyancy?

• 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.
• It depends upon:
  • the size of the tax base;
  • the friendliness of the tax administration;
  • the rationality and simplicity of tax rates;
• Tax buoyancy explains the relationship between the changes in the government’s tax revenue growth and the changes in Gross domestic product (GDP).
• There ....