Tax Buoyancy for UPSC | Taxation | Comprehensive notes

Tax Buoyancy: Tax buoyancy refers to the responsiveness of tax revenue to changes in the overall economic activity (like GDP), taking into account both changes in the tax base (such as income or consumption) and changes in tax rates or policies . In other words, tax buoyancy measures how effectively a tax system generates more revenue as the economy grows or changes, even without increasing tax rates. Read in Kannada version: Tax  buoyancy in Kannada: ತೋತೇ ಹಣಕಾಸು ಭದ್ರತೆ Key Points: Tax Buoyancy > 1 : This means the tax system is highly responsive, and tax revenue grows faster than the economy (GDP) due to factors like improved tax compliance, increased tax base, or rate changes. Tax Buoyancy = 1 : This means tax revenue grows at the same rate as the economy (GDP), which indicates a neutral response from the tax system. Tax Buoyancy < 1 : This suggests the tax system is not very responsive, and tax revenue grows slower than the economy. Formula: Tax Buoyancy = % Δ Tax Revenue % Δ GDP \text{Tax Buoy…