Chidambaram's Departure Casts Doubt On Indian GST Proposals

by Lorys Charalambous, Tax-News.com, Cyprus

05 December 2008

The departure of India's Finance Minister, P. Chidambaram, from his post has increased concerns that the long-awaited introduction of a unified goods and services tax (GST) will be delayed even further.

Chidambaram's sudden departure from his role has been prompted by the resignation of Home Minister Shivraj Patil, who was forced to quit this week after pressure mounted on the government to act in the wake of the recent terror attacks suffered by the county.

Patil's role will now be taken on by Chidambaram, who will temporarily leave the Finance Ministry under the full control of the country's Prime Minister, Manmohan Singh.

However, the lack of a full-time Finance Minister for the interim has reignited fears that delays to several tax initiatives, including the planned introduction of a much-anticipated national GST, will follow.

A national GST system was first proposed back in 2004 and Chidambaram appointed a panel in 2007 to begin discussions with the states, in order to reach an agreed platform for the new tax, which will sit alongside VAT. The idea behind the reform is to consolidate the myriad of state level taxes into a single unified rate. However, the scheme promises to be a huge undertaking, and is unlikely to be in place before 2010.

Concerns have been expressed that the simplification of the country's income tax code, along with certain improvements to the tax regime for Special Economic Zones, will also be put on the back-burner whilst the government appoints a new Finance Minister.

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