CLE::VAT
Section
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- 2		 Section
- 3		 Section
- 4		 Section
- 5		 Section
- 6		 Section
- 7		 Section
- 8		 Section
- 9		 Annexure

INDIAN HISTORICAL PERSPECTIVE

States such as Andhrapradesh, Kerala, Maharashtra, Madhyapradesh, Delhi and Haryana have experimented with VAT albeit in a limited manner, covering only limited goods. The experiments never had the full-fledged features of VAT and were only concoctions. These states have even called off their experiments owing to different reasons. If one analyses why VAT or its variant failed in Maharashtra2, which was the only state to come closer to a true VAT regime, save Haryana which has implemented VAT from April 2004 itself, the following reasons emerge:

  1. Dual methodologies of computation of VAT credit3 , one for the Manufacturing stage and the other for the trading stage, thus breaking the audit trail. It may be noted that one of the advantages of VAT system, as we would be dealing later on, is the audit trail that is created in the VAT chain.

  2. Presence of a large number of tax deferral and holiday schemes, which resulted in a narrow base. It may again be noted that under VAT, which is multi-point, the tax rates have to be reasonably low, and lower tax rates presupposes that the tax base is wide. These two features were not present in the Maharashtra tax regime.

  3. Low level of awareness among traders, and even administrators, giving rise to fears and apprehensions. Owing to this, there was considerable consternation among the trade, which gave rise to open revolt against the system.

  4. Partial implementation of the ideal VAT with the existing system coexisting even under this regime.

  5. Increased burden on retailers of Bookkeeping and compliance.

  6. Multiplicity of rates of tax under the VAT regime.

  7. Drop in revenue for the State Government, though there are no studies attributing such reduction to the system of taxation.

    Thus States had indeed tried some variations of VAT, but eventually gave up due to a variety of reasons. 

    As we are aware, the state of Haryana has been the only State to follow a full fledged VAT system ( barring the denial of input tax credit for CST purchases) from April 2004 and has reported increase in revenues for the State. This probably vindicates the view that VAT will increase revenues for Government (due to having a broader base) rather than reduce Government revenues.
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