VAT in India : problems and options

A weak budgetary position, the desire for trade and domestic liberalization, the complexity and anomalies in the existing system, and the weakness of direct taxation point to the need for a major reform in indirect taxation. An obvious candidate is a VAT. While the benefits of a value added taxation (VAT) in terms of economic efficiency are well known, its introduction in a federal context, such as India, poses problems. We review some conceptual issues and international experience with VAT. Careful consideration of questions relating to the choice of bases and rates, revenue sharing and tax administration will be required. A number of possible versions of a VAT in a federal context are identified. Each has its advantages and disadvantages and further research will investigate particular issues that arise. (Author abstract)