The Income Tax department’s cost of tax collection has dropped to around 0.5% of the total taxes collected in FY22, the lowest in more than two decades, amid tech-enabled oversight of economic activity and a widening net of taxes deducted at source (TDS).
Data with the I-T department showed that the cost of collection has dropped to 0.53% of the total direct tax receipts of ?14.12 trillion in FY22, down from 1.36% in the financial year 2000-01. Between FY16 and FY20, it ranged between 0.61% to 0.66% before briefly going up to 0.76% in the pandemic year of FY21 that bore the brunt of a harsh national lockdown, before falling further in FY22.
The department’s cost of revenue collection entails mostly salaries, administrative expenses, I-T expenses and some capital spending, according to a parliamentary committee report on demands for grants. While direct tax receipts have nearly doubled from ?7.4 trillion in FY16 to ?14.12 trillion in FY22, cost of collection has seen a more graded increase from ?4,593 crore to ?7,479 crore during the period.
The fall in cost of collection as a share of overall direct tax receipts comes amid continuous strengthening of the I-T backbone of the department under various projects, including the latest revamp of the e-filing portal and the tech-enabled mapping of non-filers with potential tax liability.
A key strategy employed by the tax authority is to capture transaction data from third parties and presenting it to assessees for accurate reporting of their income. Assessees are also offered the chance to update their tax returns.
The declining trend can be attributed to a more targeted approach toward tax assessments and investigations, explained Amit Maheshwari, tax partner at AKM Global, a tax and consulting firm. “The efforts of the department due to the robust use of data intelligence is resulting in better tax recoveries," said Maheshwari.
Technology is also a big factor in driving down costs, he said.
Experts believe that in addition to administrative measures, policy changes too have contributed to greater efficiency in tax collection, especially, phasing out of tax exemptions.
“By implementing measures like an electronic tax filing system and tax payment, reducing tax exemptions, streamlining the tax code, improving overall tax administration and making wise use of information management systems, the department’s cost of collection has steadily decreased," said Om Rajpurohit, joint partner (corporate & international tax) at AMRG & Associates, an accounting firm. This proves that reform measures are reflecting in the tax system, he said.
In the just concluded financial year of FY23, the Centre’s income tax receipts, before adjusting for refunds, went up to ?16.68 trillion, a near 23% jump from a year ago. For FY24, the target is over ?18 trillion.
An email sent to the finance ministry seeking comments for the story on Monday remained unanswered at the time of publishing.
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