Goods and service tax should be 14-16%: FM

Finance minister P Chidambaram will soon delve into the Parthasarathy Shome report on introducing a proposed goods and service tax from April 1, 2010.

"I have the report on my table and I will apply my mind to it. We will hold one round of consultation with state finance ministers and then the chambers," he said.

At the end of this process, the government is expected to come out with a road map for implementation of the country-wide tax.

The finance minister was of the opinion that the GST should be somewhere between 14 and 16 per cent. He said a four-year period to introduce it was ambitious and he was hopeful of a national consensus in favour of the move.

Chidambaram was addressing the CII National Council here today. Speaking about his scheduled meeting with bankers on Thursday, the finance minister said he would address the issue of liquidity.

The meeting assumes significance since banks are hinting at another increase in interest rates because of tightening liquidity. Some banks have recently hiked the benchmark prime lending rate by 100 basis points to over 12 per cent.

The finance minister ruled out any review of the recent Budget decision on Section 10 (23) G of the Income Tax Act. "Sometime or the other, we will have to get rid of exemptions, which amount to Rs 153,000 crore," he added.

Chidambaram also said while India was not rushing to sign preferential trade pacts and free trade agreements with other countries, the country was willing to facilitate easy access to goods from neighbouring countries.

"We need to take a broader view at our neighbourhood rather than look at it in terms of rupees and paise. We must be able to absorb their exports. What is the point in calling ourselves a regional economic power if we cannot help our neighbours?" he said.

Chidambaram's statement comes at a time when Bangladesh President Khaleda Zia is on a three-day visit to India and it is likely that the two countries may sign three economic pacts, including a double taxation avoidance agreement and an investment protection agreement.

Chidambaram also said the strong bias in favour of agriculture in the recent Budget would mean that the government would announce a short-term loan for farmers called the kharif loan, which would be available at an interest of 7 per cent per annum.