Captioned ‘Pressing the Indian Growth Accelerator: Policy Imperatives,'the Paper concludes: "while current expenditures, particularly those on subsidies, do need to be contained, it is now time to give as much attention to increase revenues through enhancement of the tax-GDP ratio."

The gross tax-GDP ratio of the Central Government has recorded a significant fall from its peak of 2007-08 of 12 percent to 10 per cent in 2013-14 reflecting the fiscal stimulus measures and weakening of economic activity.(According to the Budget 2015-16, the ratio has declined to a revised estimate of 9.9% in current financial year ending 31 March 2015.)

The Paper observes: "there appears to be considerable room for increasing the tax/GDP ratio. The net result of a sustained thrust on tax compliance in all areas - both direct and indirect taxes - should result in greater buoyancy in the tax/GDP ratio than has been experienced in the past. This can be achieved without any major increase in tax rates, through widening of the tax base and rationalization of exemptions, The number of income taxpayers can be increased from the present 35 million to at least 60 million; a wider legal tax base increases equity as well as compliance."

The Paper has noticed that personal income tax rates in India as percentage of GDP are far lower than the rates prevailing in the Organization for Economic Cooperation and Development (OECD).

It explains: "A comparison of India with the OECD countries indicates that the corporate tax revenues in India are higher than in the OECD (3.6 percent to GDP versus 3.0 percent in 2011); in contrast, the personal income tax revenues in India are found to be significantly lower than the OECD (1.8 percent to GDP versus 8.5 percent in 2011). This pattern is also evident in other emerging and developing economies."

Low income levels in India can partly explain the relatively low personal income tax collections in India, but it appears that the income tax rates are also notably lower in the Indian context. This is true for both the peak income tax rate as well as the income thresholds at which the various tax rates kick in. For example, the peak income tax rate in India was 30 percent in 2013, whereas it averaged 36 percent in the OECD countries.

It says Cross-country evidence indicates that broadening the tax base is the key to increasing tax revenues in many low-income countries. This is true for advanced economies as well.

It cites the example of Scandinavian tax systems that have very wide coverage of third-party information reporting and well-developed information trails ensure a low level of tax evasion. Moreover, broad tax bases in these countries further encourage low levels of tax avoidance and contribute to modest elasticities of taxable income with respect to the marginal tax rate.

The Paper says: "Tax compliance is as high as 90 percent in advanced economies, if third party information practice exists; the compliance rate increases to 99 percent if both withholding and third party information practices exist."

It concludes: "The immediate priority for returning the country to a sustained higher growth path is to achieve the kind of fiscal quality and low inflation level that was exhibited during 2003-2008. However, focused attention now needs to be given to increasing efficiency and compliance in tax revenue collection so that the Indian overall tax/GDP ratio rises to levels that are consistent with comparable international experience."