India’s Move from Sales Tax to VAT: A Hit or Miss?

Santra, Sattwik and Hati, Koushik Kumar (2014): India’s Move from Sales Tax to VAT: A Hit or Miss?

Abstract

Government of India introduced Value Added Tax (VAT) across all its states in subsequent stages in the early years of this millennium. The main motive behind this move was to make the commercial tax collection more transparent, accountable and revenue enhancing. The purpose of this paper is to analyze if the introduction of VAT has indeed served its purpose or not. We find that in terms of the effective change in the rate of taxation and in terms of a change in the overall tax base, the number of states affected adversely by the new VAT regime is greater than the number of states that have been affected positively. Also the sum of the average tax collected, as well as the sum of the average state domestic product of the negatively affected states far outweighs those of the states affected favorably.

• Item Type: MPRA Paper
• Language: English
• Keywords: Sales Tax, Value Added Tax, Revenue, India
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C23 - Panel Data Models ; Spatio-temporal Models; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H20 - General; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency ; Optimal Taxation; H - Public Economics > H7 - State and Local Government ; Intergovernmental Relations > H71 - State and Local Taxation, Subsidies, and Revenue

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