Direct tax mop-up set to rise 40%

Direct tax collections are set to reach an unprecedented level of Rs 322,000 crore by March 2008 due to 40 per cent year-on-year growth for the second consecutive year. The 2007-08 Budget estimate for direct tax collections is Rs 267,490 crore.

A key contributor to this high growth will be the tax deducted at source, collections from which are rising sharply due to better administration.

"TDS collections are expected to reach Rs 100,000 crore in 2007-08, compared with Rs 69,000 crore in 2006-07, a growth of 45 per cent," said an official of the Central Board of Direct Taxes (CBDT).

Personal income tax collections, which rose 34 per cent in 2006-07, are growing at around 40 per cent. Similarly, corporation tax collections are growing at 45 per cent, compared with 41 per cent in 2006-07.

Till November 15 this fiscal year, direct tax collections rose 43 per cent. Top CBDT officials expect the figure to cross Rs 210,000 crore by December-end. This means nearly 80 per cent of the Budget target will be met in the first nine months of 2007-08 itself.

"The buoyancy in collections can be attributed to economic growth, improvement in administration, expansion of tax-payer base and improvement in compliance levels," said a senior finance ministry official.

Direct tax collections rose 39.27 per cent to Rs 230,091 crore in 2006-07. The average growth in the three-year period between 2003-04 and 2005-06 was 26 per cent.

"Even on this high a base, direct tax collections are expected to grow at the last fiscal's rate of 40 per cent," said an official of the income-tax department.

With indirect tax collections target within reach, the surge in direct tax collections will help the government meet the fiscal targets for 2007-08 comfortably. In fact, the revenue deficit target of 1.5 per cent and fiscal deficit target of 3.3 per cent for 2007-08 may be revised further downward.

"The Budget targets will be achieved. Revenue growth estimates were lower for the fiscal, so higher direct tax collections are a saving grace," said M Govinda Rao, director, National Institute of Public Finance and Policy.

However, the actual overall fiscal deficit would exceed the Budget target if off-budget expenditures on subsidies for fertiliser, oil and food were taken into account, Rao added.

"Higher direct tax collections have put the country on track for achieving the Fiscal Responsibility and Budget Management Act targets. If some cash is left after meeting the Budget targets, the government should spend it on infrastructure, health and education," said Gaurav Taneja, national tax director, Ernst & Young.