Consistently buoyant economic growth coupled with heightened sense of tax compliance have led to a drastic decline in the cost of direct tax collections as a proportion of total direct tax collections, leading to an all-time low of 0.54 per cent in 2007-08.

Simply put, the income-tax department spends 54 paise for every Rs 100 direct tax collected by it, which is among the lowest in the world.

There has been a steady decline in cost of direct tax collections over the last decade, thanks to buoyant direct tax collections, which for the first time in 2007-08 accounted for more than 50 per cent of the Centres revenue kitty.

For the first time, direct taxes collections in 2007-08 have exceeded the indirect taxes collections (by about a hefty Rs 34,000 crore). Tax deduction at source (TDS) has also played an important role in the substantial spurt in direct tax collections.

The significance of decline in cost of direct tax collections can be grasped if this were contrasted with the position in 1998-99, when cost of direct tax collections in percentage term was 1.81 per cent. Since then there has been a steady decline in cost of direct tax collections, except in 2001-02, official sources said.

The Centres direct tax collections in 1998-99 stood at about Rs 44,600 crore and progressively increased to touch Rs 3,14,468 crore in 2007-08. The non-Plan expenditure on the income tax department has increased from Rs 852 crore in 1998-99 to about Rs 1,684 crore in 2007-08.

While the collections have increased by eight times in little less than a decade, the expenditure (non-Plan) on the income tax department remains at almost the same level if one were to factor-in inflation in these years, sources said, adding that lower expenditure on infrastructure were putting pressure on taxpayer service.

Tax base

In 1998-99, the income tax department had a tax base of 1.7 crore assessees. This had gone up to about 3.5 crore assessees in 2007-08. Going forward, direct tax collections are expected to grow considerably on the back of the current economic growth momentum.

From a level of 9.1 per cent in the late nineties, the tax-to-GDP ratio has been raised to 12.5 per cent in 2007-08 and the ratio is expected to reach 13 per cent this financial year.