Introduction of State VAT is an important and recent 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 by virtue of Entry 54 of State List of the Seventh Schedule of the Constitution of India.

Since VAT/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 package for payment of compensation to States for any revenue loss on account of introduction of VAT has been implemented. Financial support under Mission Mode Project (MMP) is being provided to States/UTs in order to enable them to take up computerization of their Commercial Tax Departments. A separate project for computerization of Commercial tax administration of Himachal Pradesh and Jammu & Kashmir has also been sanctioned. 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.