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Value Added Tax (VAT) is a State level tax reform measure which is proposed to be implemented by States in lieu of the existing Sales Tax system. The Central Government is playing the role of facilitator in this tax reform process. VAT is a simple, transparent, multi-stage tax with input tax credit, which eliminates cascading of taxes. As decided by the Empowered Committee, it is expected that a number of State level taxes on purchase or sales of goods like state sales tax, turnover tax, purchase tax, additional sales tax, surcharge, entry tax (not in lieu of Octroi) will be sub-sumed in VAT. Hence, instead of multiplicity of taxes, there would only be a single tax.
The provision of Input Tax Credit (ITC) is one of the most significant features of VAT which ensures that there is no cascading of tax (i.e. tax on tax) and no consequent price escalation which is ultimately beneficial to the common public.
International experience suggests that VAT is revenue enhancing. However, actual impact on revenues of States/UTs shall be known only after VAT is actually implemented by the States/UTs.
This information was given by Shri S. S. Palanimanickam, Minister of State for Finance, in reply to a question by Shri Cho. S. Ramaswamy in Rajya Sabha today.
BSC/BY/CS-146/05
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