State-Value Added Tax in India : An Analysis of Revenue Implications

Contents: Preface. 1. Introduction. 2. Role of Sales Tax in the fiscal structure of Rajasthan. 3. Structure of Sales Tax and introduction of VAT. 4. Organization for tax administration. 5. Organization of Sales Tax and capacity building for VAT. 6. Revenue implications of introducing VAT in Rajasthan. 7. Computerization and reforms in MIS under VAT. 8. Summary of conclusions and policy imperatives. References. Index.

"Sales Tax, which has  come to occupy a very important place in the fiscal structure of all the states, has now been replaced by State Value Added Tax (State-VAT).

As is the case in most other countries, this is being done to remove the deficiencies in the existing Sales Tax.

In the past, considerable effort have, in this regard, been made by the committees of States' Finance Ministers of 1995 and 1998 as also by the Committee of Chief Ministers of 1999. In addition, the efforts of the Empowered committee and the facilitation by the Union Government, have enabled almost all the states to go in for State-VAT.

Introduction of sate-VAT by all the state is indeed a paradigm shift and an important step in tax reform at the sub-national level. It was, however, expected that such a move might cause some implications for the revenue of the states. Also, this being a multipoint Sales Tax with set-off, it could bring a large number of taxpayers in to tax net. This might, therefore, raise issues of cost of compliance as also of corruption, if not implemented according to the principles of VAT.

This study, therefore, is the first attempt to empirically examine the effects of introduction State-VAT to replace the existing Sales Tax in the states. For an in-depth analysis it takes a case study of Rajasthan and recommends measures needed to improve governance from the point of tax department of all the states as also from the view of taxpayers.

The study also recommends measures needed to improve the structure of VAT both in the short-run and in the medium run.

Finally, the study recommends as a measure of second-generation reforms to have just one comprehensive State-VAT (by merger of CenVAT into State-VAT) and some restructuring of State Taxes." (jacket)