Necessity of VAT in India

India, particularly the trading community, has believed in accepting and adopting loopholes in any system administered by the state or the Centre. If a well-administered system comes in, it will close avenues for traders and businessmen to evade paying taxes. They will also be compelled to keep proper records of their sales and purchases.

Many sections hold the view that the trading community has been amongst the biggest offenders when it comes to evading taxes.

Under the VAT system, no exemptions will be given and a tax will be levied at each stage of manufacture of a product. At each stage of value-addition, the tax levied on the inputs can be claimed back from the tax authorities.

At a macro level, there are two issues, which make the introduction of VAT critical for India.

Industry watchers say that the VAT system, if enforced properly, forms part of the fiscal consolidation strategy for the country. It could, in fact, help address the fiscal deficit problem and the revenues estimated to be collected could actually mean lowering of the fiscal deficit burden for the government.

The International Monetary Fund (IMF), in its semi-annual World Economic Outlook released on April 9, expressed its concern over India's large fiscal deficit - at 10 per cent of the GDP.

Further any globally accepted tax administrative system, will only help India integrate better in the World Trade Organisation regime.