Budget 2026: Laffer Curve's Limits & FM's Urgent Revenue Hunt

• The Laffer Curve suggests an optimal tax rate for maximum revenue, but raising taxes too high can decrease revenue by discouraging economic activity and encouraging tax avoidance.
• Finance Minister Nirmala Sitharaman cut corporate tax rates in 2019 and GST/income tax rates recently, hoping to stimulate investment and demand, but manufacturing revival remains elusive.
• Despite a 6.1% increase in GST collections for December 2025, a significant portion comes from inelastic demand, raising concerns about future revenue as elastic demand wanes.
• Only 1.6% to 2% of India's population pays income tax, a figure likely to shrink further with the increased tax-free threshold of ₹12 lakh.
• Presumptive taxation schemes have failed to significantly broaden the tax base, with a large number of ITR-4 filers still being refund seekers, necessitating stricter enforcement and new revenue streams like taxing capital gains and reviving wealth/estate taxes.

Why It Matters: The Laffer Curve's effectiveness is limited; FM must find new direct tax sources to avoid fiscal deficit.