Indian PM Calls On States To Pull In One Direction On Tax

by Lorys Charalabous, Tax-News.com, Cyprus

02 October 2006

Far from encouraging trade and economic development, the numerous tax and other incentives put in place by state governments are in reality hindering the overall growth of the Indian economy, according to Indian Prime Minister Manmohan Singh.

Addressing a conference of chief ministers organized by the PHD Chamber of Commerce and Industry, Singh argued that the greatest barriers to trade within India have been its different tax systems. This, he said, has slowed the pace of economic development, particularly in some of the poorer northern states.

"Tax systems have been put in place which act as hindrances. Tax breaks and shelters have been created to facilitate development of backward regions," he stated.

"When the whole world is moving towards dismantling barriers to trade and promoting trade facilitation, it is imperative that states in India too realise that these policies — which may be driven by revenue or development concerns — will not pay off in the long run."

Singh cited border checks and taxes on vehicles as examples of hurdles to trade and free movement of goods and said that the free flow of trade can add up to 2% to state growth rates across the region.

"We have to enable a common economy and a single market to emerge," he continued.

"VAT should be the only tax on goods. We continue to have octroi, luxury taxes, mandi taxes and other levies."

"In the long run, as we move to a common Goods and Services Tax, most of these taxes should disappear. I urge the Chief Ministers to work towards harmonising and rationalising VAT within the region as a first step toward GST," Singh said.

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