a    tr    t re in ndia    17.5
     prices of goods it does not increase inflation—                  (iii) With the process of economic reforms,
     and is therefore highly suitable for an economy                          India moved towards the market economy.
     like India where due to high level of poverty large                      And for this, firstly India needed to have a
     number of people lack the market level purchasing                        single market. Without uniformity at the
     capacity. It is a pro-poor tax system without being                      state level taxes (uniform VAT) this was
     anti-rich because rich people do not suffer either.                      not possible.
                                                                       (iv) Indian federal design has resulted in
     neeD of vAt in inDiA                                                     economically weaker states and stronger
     Over 160 nations in the world have implemented                           centre. As VAT increases the total tax
     the VAT system of taxation regarding collecting                          collection (experience of the world
     their indirect taxes. There have been valid reasons                      suggests so) it was fit to be implemented
     why India should move towards the VAT method                             at the state level.
     of tax collection. We may see some of the major                    (v) India has been a country of high level tax
     reasons:13                                                               evasion. By implementing VAT method
           (i) Due to single point tax collection, Indian                     of indirect tax collection, it becomes
                indirect tax collection system was price-                     almost impossible to go for large scale
                increasing (having cascading effect on the                    tax evasion. To prove one’s level of value
                price) which was highly detrimental to                        addition, the purchase invoice/receipt is
                the poor masses. Implementation of VAT                        a must which ultimately makes it cross-
                will improve the purchasing capacity and                      check the level of production and sale in
                so living standard of the poor people.14                      the economy.15
                                                                       (vi) If some of the state level taxes (which
         (ii) India is having a federal political system
                                                                              are many) are converted into state VAT
                where side by side the central government,
                                                                              the complexity of taxation will also be
                states have also been given power to
                                                                              minimised. And at the end, it is possible
                impose taxes and collect them. At the
                                                                              to merge some of the centre’s indirect
                central level, there had been uniformity
                                                                              taxes with it, i.e., arrival of the single
                of taxes for the economy. But there was
                no ‘uniformity’ at the state level taxes
                (i.e., state excise, sales tax, entertainment            Keeping all such things in mind, India
                tax, etc.). This was detrimental to the            started tax reform (Chelliah Committee and
                                                                   Kelkar Committee) and a certain level of sucess has
                development of a single market for Indian
                                                                   been achieved in this area which can boost our
                economy as a whole. India basically had
                many markets, but no Indian market as
                such. To bring in uniformity at the state-               In the year 1996, the central government
                level taxes, VAT was a necessary step in           started collecting its excise duty on the VAT
                India.                                             method and the tax was given a new name—the
       13.    Derived from the points forwarded by the GoI and the       The next proposal was to merge the states excise
              Empowered Group of State Ministers.
                                                                   duty (imposed on intoxicants only) and their sales
       14.    Raja C. Chelliah, Pawan K. Aggarwal, Mahesh C.
              Purohit and R. Kavita Rao, Introduction to Value     taxes into one tax—the state VAT or VAT. This
              Added Tax , in Amaresh Bagchi (ed.). Readings in     could not take place due to states’ lack of political
              Public Finance (New Delhi: Oxford University Press,
              2005), pp. 277–78.                                     15.   Ibid.