Value Added Tax: Current Issues in India

Abstract

India’s indirect tax system is unique in that under the Constitution, the Union government has the authority to impose a broad spectrum of excise duties on production or manufacture while the States are assigned the power to levy sales tax on consumption. In addition, States are empowered to levy tax on many other goods and services in the form of entry tax, octroi, entertainment tax, electricity duty, motor vehicles tax, passengers and goods tax, etc. Due to this dichotomy of authority under the Constitution, India has been rather slow in the adoption of VAT. Also, it has created an obstacle in introducing European-style VAT in India, although over the years, tax reform committees have recommended that union excise duty, sales tax, and other domestic trade taxes be replaced by a comprehensive VAT that could tax all commodities and services.