More than 2,000 Isle of Man residents submitted their 2009-10 tax returns online.
The initative has led to significant cost savings in terms of officer time, printing, stationery supplies and postal expenditure, The Treasury has revealed.
Treasury Minister Anne Craine said: "I am very encouraged by the take-up of our online tax services and pleased that the feedback from users has been so positive.
"As well as improving customer choice online services provide a lower cost way for government to conduct its business which is an important consideration as we seek to address the fiscal challenges that lie ahead."
She added Treasury plans to extend its online offering in future with the aim of giving all taxpayers the opportunity to move away from sending in paper copies of their annual returns.
"Work will continue in order to improve the overall package for customers and developments planned for the 2010-11 tax year will focus on the introduction of auto assessing, secure messaging and e-documents."
After a successful trial online tax services were made generally available from April 6 this year.
When taxpayers start to use it, the system builds a unique profile so that annual returns are tailored to their individual circumstances.
Online users can:
• Notify the Income Tax Division of changes to their personal circumstances, for example getting married or moving house
• View a history of their previous tax returns
• View details of tax returns submitted online
• View details of their assessments and any charges
• View the balance of any tax owed or refunds due
• Make online payments by BACS credit transfer, debit card or credit card
Mrs Craine added: "Our online tax services have already demonstrated their value and we expect the savings generated to increase significantly in 2011.
"In the longer-term I would like us to reach a position where the electronic submission of tax returns is the norm."
The success of the online tax service, developed in conjunction with the Department of Economic Development's Information Services Division, has been recognised in this year's Isle of Man Newspapers Awards for Excellence.
The joint project has earned the two divisions a place on the shortlist for the Public Sector Achievement of the Year category.
