Determinants of Direct Tax Revenue in India: An Empirical Study via Incorporating Conventional, Financial, Social and Economic Policy Factors

Abstract

Revenue mobilisation remains a stringent challenge for all countries across the globe, especially for underdeveloped and developing nations. But the capability of the government to generate revenue is limited and depends upon many factors. Therefore, the current study tries to explore the determinants of direct tax revenue of the government in India by incorporating conventional, social, financial and economic policy factors. The results explicate that in conventional factors, the agriculture sector contribution in sectoral composition has a negative impact, but trade openness has a positive and statistically significant impact on the direct tax collection of the government. Moreover, in social variables, urbanisation rates have positive impact in both the short and long run on the tax revenue of the government. In financial variables, the result illustrates that the credit deposit ratio has a positive, but, statistically insignificant impact and financial development have a positive and statistically significant impact on the direct tax collections of the government in India. Similarly, in economic policy factors, FDI, NODAU and broad money have a positive impact; however, the coefficient is significant only for broad money. The current study will act as a guide for policymakers, academicians and governments in formulating future policies and reforms in the direct taxation system of the country.

DOI: https://doi.org/10.21863/jcar/2024.13.3.011

Keywords: Direct Tax Revenue, Government, Conventional Factors, Economic Policy Factors, Financial Development

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