India Announces Package Of Tax Cuts

by Lorys Charalamabous, Tax-News.com, Cyprus

12 January 2004

In a surprise announcement last Thursday, the Indian government revealed that it has cut indirect taxes and customs duties on a range of goods and services.

The tax cuts are effective immediately and the most significant moves included a decrease in the peak duty on nonfarm goods from 25% to 20%, and the removal of a 4% additional import duty on all goods.

The government has also cut aviation taxes by reducing duties on turbine fuel from 15% to 8%, eliminating the inland air travel tax formerly levied at 15% and removing the 500 rupee-per-passenger Foreign Travel Tax.

Analysts predict that the tax cuts will not only boost India’s growing technology sector by reducing the cost of goods such as computers, mobile phones and pharmaceutical products, but that they will also encourage greater participation by foreign firms in the domestic economy as they target an increasingly wealthy middle class.

Other measures announced by the government include exempting taxpayers earning less than 150,000 rupees (US$3,300) per year from filing an income tax return.

The sudden announcement has been interpreted by many observers as a sign that the ruling BJP Party is gearing up for an early election before its full term expires in October this year.

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