Investigating the Relationship of Growth Rate of Taxes and Economic Growth Rate of India

Abstract

Taxes form essential source of revenue of any nation. It finances the various planned and non planned expenditure of the government. The Indian economy has grown tremendously post the economic reforms adopted in 1991. The country tax system was archaic for a very long period of time. It was only in the recent past that the country introduced the reforms in its indirect tax regime by introducing the Goods and Services Tax in 2017. The efforts are being made to reform the direct taxes and bring in the Direct Tax Code to replace the ages old Income Tax Act, 1961. The present paper aims to investigate the relationship of direct and indirect taxes with the economic growth rate of India. The results signified that the economic growth rate is significantly positively related to growth of direct taxes and total taxes in India. However it is found to have insignificant positive relationship with the growth of indirect taxes in India.