Monday, March 20, 2006

update re: india tax legislation

It's nice to have a growing economy. With the debate on the Finance Bill to open this week, the Indian Finance Minister, Mr. P. Chidambaram, has announced that gross tax revenues are continuing to grow at about a 20 percent annual clip, which the Government's proposed budget (reported here in February) will not affect. The Finance Minister also stated that India expects to have a full-fledged goods and services tax within the next four years; meantime the services tax would be converged with excise duties and the central VAT would be stablized at about 15 percent. Customs duties, which the new budget would reduce from a maximum of 15 to 12.5 percent, would eventually stabilize between 5 and 10 percent, i.e., a rate more or less comparable to the other big Asian economies. Mr. Chidambaram described the current year as a period of "consolidation" in tax matters, which appears to mean that--so long as the Indian economy keeps on growing at its current rate--tax revenues will continue to increase without any increase, perhaps even some decrease, in tax rates. This also means that the issue of distributional equity, alwalys important in India, is likely to express itself in spending rather than tax matters for the immediate future. Stay tuned for further developments.


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