VAT Leads To Boost In Indian State Revenues

by Lorys Charalambous, Tax-News.com, Cyprus

25 November 2005

The 23 Indian states which have implemented value added tax have experienced an increase in their revenue take of more than 14% over the course of the first half of the current fiscal year.

According to statistics released by the Indian Finance Ministry, the tax revenues of the 23 VAT-implementing States during April-September 2005 stood at R33,400 crore (US$7.3 billion) as against the sales tax revenues of R29,200 crore recorded during April-September 2004, an increase of 14.38%.

Postponed several times because state governments feared that their revenue take would fall, VAT was finally implemented by the majority of states in April this year. It was designed to replace the patchwork system of locally-applied sales taxes and make the system generally less chaotic and more transparent.

Shortly after the VAT was introduced in the majority of states, the central government announced that it would begin to phase out Central Sales Tax by 2007 - a move it hopes will persuade the remaining state governments which are reluctant to implement VAT.

Under these plans, the rate of CST will come down to 2% from April 1, 2006, before being ultimately phased out from April 2007.

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