Falling tax collections are hitting the government where it hurts most. The current year is not showing any signs of improvement too.

The Centres net direct tax collections for the last fiscal have fallen short of target. Details available with NDTV Profit show that the collections by the Central Board of Direct Taxes (CBDT) have been Rs 11,000 crore (nearly $2.2 billion) less than the target.

Net direct tax collections are at Rs 3.34 lakh crore (approximately $6.6 billion) growing at a dismal 8 per cent rate, against a revised budget estimate of Rs 3.45 lakh crore (approximately $6.9 billion). CBDT officials told NDTV that the government is still hopeful of closing the fiscal with a net addition of Rs 4,000 crore (around $0.8 billion) as central TDS. This could help the government end the fiscal 08-09 with Rs 3.38 lakh crore (around $6.6 billion) in net direct tax revenues.

Central TDS is the tax deducted from the government departments. The taxman has focussed on this category largely as a source of regular corporate income since tax streams are drying up due to the economic slowdown. Despite this, the government will fall short of its revised estimates by almost Rs 7,000 crore.

In its analysis note, CBDT has observed that the global economic slowdown started impacting the tax collection severely from third quarter onwards. Consequently, during the second half of the financial, the overall advance tax collection was 45 per cent of the total collections, as against 51.4 per cent for the corresponding period of FY 07-08. In fact, for the whole fiscal, gross advance tax collection displayed a negative growth of almost 18 per cent.''

Among the various sources from which the government garners its tax revenues like corporate tax, income tax, fringe benefit tax (FBT) and the securities transaction tax (STT), the FBT has recorded the highest growth rate.

FBT collections are up by over 13 per cent, while corporate income taxes have grown by 12 per cent, personal income tax revenues are crawling at a 1.4 per cent growth rate, the slowest in the past 5 years. STT has given a big jolt to the CBDT with collections falling by 37 per cent. With markets in a bear hug for over one year now, STT collections have slipped to Rs 5,405 crore against Rs 8,500 crore raked in during 07-08.

The tax collection story on the corporate front is not rosy too. The CBDT note says: Top 500 companies have contributed a mere Rs 26,575 crore, thus, falling short by 18.44 per cent in the Q4 direct tax collections. Sector-wise, only the banking industry has shown robust results while almost all sectors have shown negative growth. Real estate sector recorded a whooping 94 per cent fall in collections in the last quarter.

With the story of economic pain still unfolding, the outlook for the current financial is anything but optimistic. CBDT officials expect direct tax collections to grow at an average rate of 7-8 per cent during 2009-10. The interim budget has put the direct tax collection target at over Rs 3.79 lakh crore (nearly $7.6 billion). At the current rate of growth in tax collections, the government will find it tough to achieve this target.

It remains to be seen, whether the new government revises this projection again, when it presents its new budget.