Budget 2008-09 is expected to see more measures to raise tax compliance, according to finance ministry officials, rather than a cut in direct tax rates.

Compliance levels in India have improved significantly over the past few years with 85 per cent of the country's 31.9 million tax payers filing income tax returns in 2006-07. But this is still below the near-100 per cent compliance levels in developed countries.

Most of the remaining tax-payers who do not file returns may have paid taxes partly or fully.

Income tax officials suspect that this category of non-filers actually contains a significant number of high-income earners. Since they do not file returns, they escape scrutiny and possible higher tax claims from the revenue authorities.

"We have to step up our efforts to ensure higher compliance. Unless compliance levels increase, it will be difficult to give tax breaks like a reduction in the income tax rate. The number of tax payers has to increase. More steps in this direction can be expected," a senior official told Business Standard.

Around 800,000 to a million new tax payers have come within the tax net over the past few years, mainly due to recent high economic growth and efforts by the tax authorities to plug loopholes.

Although the official did not specify the proposed measures (most taxation-related proposals are finalised closer to the date of the Budget), it is expected that more transactions may be brought under the ambit of the Permanent Account Number (PAN) and the Annual Information Return.

The latter currently covers seven high-value financial transactions including property deals over Rs 30 lakh (Rs 3 million).

Other possible measures will be in addition to recent ones like the newly initiated Computer Aided Scrutiny System that profiles databases and throws up cases for scrutiny.

Tax deducted at source returns filed by companies and firms are going to be the next big source to enhance the tax net as declaring the PAN has been mandatory for all tax deductions two months back, added an official.

For instance, A. Kumar (name changed), a successful insurance agent, for many years, never bothered to pay income tax or file returns, despite an annual income of Rs 12 lakh (Rs 1.2 million).

Recently, the branch manager of his government-owned insurance company asked him to submit his PAN, failing which Kumar's commission earnings would not be released.

Kumar will now have to pay taxes on his total income, besides the TDS liability that he already incurs.