VAT implementation by States

1. Introduction of State VAT is the most significant tax reform measure at State level. The State VAT has replaced the earlier Sales Tax systems of the States. VAT, being a ‘tax on sale or purchase of goods within a State’ is a State subject, is a State Subject by virtue of Entry 54 of List II (State List) of the Seventh Schedule of the Constitution of India. The State VAT has been introduced by all the States/UTs except Uttar Pradesh.

2. Since Sales tax is a State subject, the Central Government has been playing the role of a facilitator for successful implementation of VAT. Some of the steps taken by the Central Government in this regard are as follows:

a) A package for payment of compensation to States for any revenue loss on account of             introduction of VAT has been implemented.

b) Technical and financial support is being provided to North Eastern/Special – category States to            enable them to take up VAT computerization.

c) Financial support has been provided to the Empowered Committee as well as the States for            undertaking VAT related publicity and awareness campaigns.

d) 50% funding is being provided to the Empowered Committee of State Finance Ministers for            implementation of the TINXSYS Project for tracking of inter-State transactions.

3. The experience with implementation of VAT has been very encouraging so far. The new System has been received well by all the stake-holders. The transition to the new system has been quite smooth. The provisional tax revenues of VAT implementing States registered an increase of 13.8% during 2005-2006 and about 21 % during 2006-2007. During 2007-08, the tax revenues of 32 States/UTs showed a further growth of 14% during the first 9 months of 2007-08 (April-December) as compared to corresponding period of last year.