Several critics of the tax reform programme in India have tended to judge the success or failure of the programme in terms of increases in revenue that the reform has brought about. Adequacy of increase is measured in terms of revenue to GDP ratio. To be sure, one of the objectives of tax reform is to improve revenue elasticity and the tax ratio. However, it should be remembered that the impact of the reform on revenue increase will not be immediate; tax compliance will increase with reduction in rates only gradually. Similarly, improvements in tax enforcement will take time. It has been emphasised in the Report of the Tax Reforms Committee that mere reduction in rates would not lead to an increase in compliance and that stricter enforcement, which becomes easier with rate reduction, is a necessary complementary step. Secondly, the growth in revenue is not to be measured only by the tax ratio. A major objective of the tax reform is to facilitate and promote faster growth of the economy. What is needed is not an immediate increase in the tax ratio but a faster growth in revenue arising from a higher growth rate of the economy. With an elasticity greater than one, in course of time, the tax ratio will rise. It could be said with some confidence that the tax system has been reformed in India significantly enough to facilitate a higher rate of growth.

It must be admitted, however, that the structural reform is far from complete, although quite a bit of ground has been covered in a short period of three years. Again, there has been only slow progress in the reform of the tax administration. Tax policy makers and tax administrators will have their hands full in the coming years.