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Understanding the Revenue Productivity of Value Added Tax

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  • Jose Sebastian

Abstract

Available evidences show that Value Added Tax (VAT) has been quite revenue productive in the case of most Indian states. This paper enquires into the factors contributing to it by piecing together evidences from various sources. There are four major factors—harmonization of the rate structure, abolition of exemptions and concessions to industries, widening of the tax base, and reduction in compliance cost—behind the revenue productivity of VAT. The paper argues that the transparency that VAT has brought about in the tax structure and the whole process of tax compliance and the reduction in compliance cost have been more important than the widening of the tax base that VAT is supposed to have brought about. In the context of switching over to Goods and Services Tax (GST), this factor has important implications.

Suggested Citation

  • Jose Sebastian, 2011. "Understanding the Revenue Productivity of Value Added Tax," The IUP Journal of Public Finance, IUP Publications, vol. 0(4), pages 28-40, November.
    • Handle: RePEc:icf:icfjpf:v:09:y:2011:i:4:p:28-40
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