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Implementing VAT in India :Implications for Federal Polity


  • Sharma, Chanchal Kumar


Over the last few years, many attempts have been made to implement VAT in India. Initially, all states were to move to VAT system by 2000, but administrative problems and concern over the revenue implications of the change delayed the scheduled implementation. It has been postponed for five times in past five years. In fact, introduction of a full fledged VAT in India seem to present numerous administrative and constitutional difficulties, including the vexed question of union-state relations. In addition to this, implementing VAT in India in context of economic reforms has paradoxical dimensions. On one hand economic reforms have led to more decentralization of expenditure responsibilities which in turn demands more decentralization of revenue raising powers if fiscal accountability is to be maintained. But on the other hand the process of implementation of VAT can lead not only to revenue loss for the states but can also steal away the states’ autonomy indicating more centralization. Thus the need is to develop such a ‘federal friendly model’ of VAT (along with a suitable compensation package) that can be implemented in India without compromising federal principles.

Suggested Citation

  • Sharma, Chanchal Kumar, 2004. "Implementing VAT in India :Implications for Federal Polity," MPRA Paper 206, University Library of Munich, Germany, revised 25 Feb 2005.
  • Handle: RePEc:pra:mprapa:206

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    References listed on IDEAS

    1. Ahmad,Etisham & Stern,Nicholas, 1991. "The Theory and Practice of Tax Reform in Developing Countries," Cambridge Books, Cambridge University Press, number 9780521265638, April.
    2. Richard Bird & Pierre Gendron, 1998. "Dual VATs and Cross-Border Trade: Two Problems, One Solution?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 5(3), pages 429-442, July.
    3. Shome, Parthasarathi & Spahn, Paul Bernd, 1996. "Brazil: Fiscal federalism and value added tax reform," Working Papers 96/11, National Institute of Public Finance and Policy.
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    Cited by:

    1. Garg, Rahul, 2009. "Delhi’s VAT Department- Mixed Results and Lessons for GST," MPRA Paper 19073, University Library of Munich, Germany.
    2. Muller, Nichole, 2007. "Indisches Recht mit Schwerpunkt auf gewerblichem Rechtsschutz im Rahmen eines Projektgeschäfts in Indien
      [Indian law with emphasis on commercial legal insurance within the scope of a project busine
      ," MPRA Paper 6809, University Library of Munich, Germany.

    More about this item


    VAT; India; Federal Polity; subnational vat; national vat; dual vat;

    JEL classification:

    • Z0 - Other Special Topics - - General
    • H29 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other
    • H0 - Public Economics - - General

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