Growth, Determinants and Responsiveness of Personal Income and Corporate Taxes:An Econometric Analysis

Studies on personal income and corporate taxes responsiveness in India identify national income as the major determinant of tax revenue collection. However, national income growth is purely exogenous when considered from the point of view of tax revenue changes. This leaves us with the question as to what could be the other major determinants of tax revenue growth and whether they could be used as suitable policy instruments to affect changes in tax collection as and when desired. The study finds that number of assessees can be considered as a useful instrument to affect the quantum of revenue in the case of personal income and corporate taxes. Further average tax rates in the case of these taxes are no determinants of tax revenues. In terms of responsiveness with respect to both national income and time, personal income tax is lower than corporate tax and the latter is lower than excise and customs duties.