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Implementing Vat in India: Implications for Federal Polity

Indian Journal of Political Science, Vol. LXVI, No. 4, pp. 915-934, 2004

21 Pages Posted: 20 Nov 2006  

Chanchal Kumar Sharma

Central University of Haryana; Centre for Multilevel Federalism, Institute of Social Sciences; GIGA German Institute of Asian Studies

Abstract

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.

Keywords: VAT, India, Federal Polity, subnational vat, national vat, dual vat

JEL Classification: H, H0, H29

Suggested Citation

Sharma, Chanchal Kumar, Implementing Vat in India: Implications for Federal Polity. Indian Journal of Political Science, Vol. LXVI, No. 4, pp. 915-934, 2004. Available at SSRN: https://ssrn.com/abstract=945952

Chanchal Sharma (Contact Author)

Central University of Haryana ( email )

Department of Political Science
Central University of Haryana
Mahendergarh, Haryana
India
91+98222888272 (Phone)

Centre for Multilevel Federalism, Institute of Social Sciences ( email )

New Delhi
India

GIGA German Institute of Asian Studies ( email )

Jungfernstieg 21
Hamburg, 20354
Germany

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