World Bank cuts FY26 growth forecast for India to 6.3%, flags weak tax collection
India's economic growth is expected to slow down to 6.3% in the current financial year from the projected 6.5% growth in FY25 due to global economic uncertainty, the
World Bank
said in a report, adding that the country needs to step up
domestic revenue mobilisation
to increase resilience against future shocks.
The South Asia Development Update report, titled 'Taxing Times', said that although tax rates in South Asia are often above the average in developing economies, tax revenue collections are lower than its potential, including in India.
"Low revenues are at the root of South Asia's fiscal fragility and could threaten macroeconomic stability, especially in times of elevated uncertainty," said Franziska Ohnsorge, World Bank chief economist for South Asia.
On average during 2019-23, government revenues in South Asia totalled 18% of GDP-below the 24% of GDP average for other developing economies, highlighting the need for improved tax policy and administration.
"South Asian tax rates are relatively high, but collection is weak, leaving those who pay taxes with high burdens and governments with insufficient funds to improve basic services," said Ohnsorge.
The report attributed low tax collection to widespread informal economy and a large agriculture sector, which account for half of the shortfall in corporate income tax revenue.
The report estimated that India lost 5% of corporate income tax revenues in 2021 due to the shifting of profits of multinational corporations into tax havens.
It added that global tax reforms, such as the Organisation for Economic Co-operation and Development (OECD)'s proposed global tax, could have benefited South Asia, potentially generating average net revenues of 1.8-2.6% of 2025 corporate income tax revenues.
The report suggested policies to improve tax revenues like streamlining tax codes, tightening enforcement, and facilitating tax compliance.
"This includes paring back tax exemptions; simplifying and unifying the tax regime to reduce incentives to operate in the informal sector; and using digital technology to identify taxpayers and facilitate collection," the report suggested.
It also suggested adopting pollution pricing, which could also help address high levels of air and water pollution while raising government revenues.
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