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Meaning of Tax Buoyancy

Meaning of Tax Buoyancy:

Generally Tax collection will also increase in relation to increase in GDP of the country. However, it may not be in same proportion, so Tax Buoyancy is a parameter used to determine that proportion.

Like if Economy is growing at 10% and Tax collection is also increasing at 10%, it means Tax Buoyancy is 1. In case, Tax Buoyancy is more than one it means Tax collection will increase more than growth in the economy. it can happen due to plugging the Tax loop-holes, more efficient tax administration, bringing more people in Tax-net etc.

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