constituted - of Planning Commission

highest in the Tenth Plan and low in the Seventh Plan (Table 2.2). The Groupconsidered that a buoyancy of 1.30 in direct taxes to be a reasonable level thatcould be considered.Table 2.2:Buoyancy in Tax RevenuePlan PeriodTax BuoyancyCorporate Income Tax Personal Income TaxSeventh Plan 0.96 1.27Eighth Plan 1.29 1.45Ninth Plan 1.62 1.73Tenth Plan 1.94 1.23Eleventh Plan 1.04 0.80The third option was using elasticities for direct taxes. Details of the alternativeapproaches for buoyancies and elasticities are in Annexure-IV.Here, it is instructive to first look at the relative merits of the various methods.The moving averages used essentially smoothens volatilities in the annual dataon taxes that were affected by the crisis and resultant demand slowdown in theeconomy. However, the use of moving averages on tax-GDP ratio, which is acomposite variable, may not be fully appropriate given that large part of thevolatility post-crisis is also in the nominal GDP and that is what has suppressedthe actual tax-GDP ratio than what the assumed ‘GDP growth’ in the EleventhPlan would indicate. GDP is a proxy for tax base; the base itself is dependent onincome distribution across deciles, sectors or sub-sectors of the yearly growth.An egalitarian distribution of GDP growth would moderate the tax growth,Corporate taxes would moderate if their pricing power and hence profitability ishampered.The demerits of buoyancy and elasticity approach are known as they seek toreflect the trend, which has been affected by the crisis. But it is here that ajudgmental mix could be useful. While it may not be reasonable to expect theWorking Group Report on Centre’s Financial ResourcesPage-18