THE RELATIONSHIP BETWEEN PER-CAPITA INCOME AND THE SHARE OF DIRECT TAXES IN TAX REVENUE IN INDIA- A STUDY OF THE RECENT TRENDS AND THEIR IMPLICATIONS

Growing public expenditure necessitates the raising of large and increasing revenue by governments all over the world through taxes, both direct and indirect. The relative shares of these two types of tax in the total tax revenue of the governments vary depending on the level of economic development of the countries. It is generally held that in an underdeveloped country with low level of per-capita income and low taxable capacity of the people the share of indirect taxes in total tax revenue is large and is higher than the share of direct taxes. As the economy of the country develops and the number of people coming within the direct taxes net increases the share of direct taxes in total tax revenue tends to increase, indicating a direct relationship between the level of per-capita income of the country and the share of direct taxes in the total tax revenue of the government. This paper is an attempt at examining whether this relationship between the level of per-capita income and the share of direct taxes in the total tax revenue of the Government holds good in India as well. This is done by regressing linearly, using a single equation linear model, the share of direct taxes on the real per-capita income of the country using the data found in the annual economic survey reports of the Government during the period from 2000-01 to 2014-15. The obtained relationship between the level of real per-capita income of the country and the share of direct taxes in total tax revenue of the Government is found to be highly significant and shows that the direct relationship between the level of per capita income and the share of direct taxes in the tax revenue of the Government holds good in India as well, pointing out the increasing progressivity of the Indian tax structure in the process of the economic development of the country