State-Level Value Added Tax and Its Revenue Implications in India

Sales tax was the most important state tax in India, contributing a significant proportion of their receipts. However, the tax itself had many drawbacks, that is, double taxation, multiplicity of rates, tax competition, etc., as a result of which its reform was considered a necessity. After much preparation, the tax was replaced by the value added tax (VAT) from April 2005 by most states as a part of domestic trade reforms being initiated in the country. The present study using panel data analysis finds that the adoption of VAT has been a good source of revenue.