• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

S. Sridharan

Value Added Tax Across the World A Cross-Country Comparison By S. Gurumurthi Publishers: Vikas, New Delhi Price: Rs 495

Reform in direct and indirect taxation is the Buzzword in India today. Reform in sales tax is happening at a fast pace and VAT is the most happening area. The Value Added Tax (VAT), which originated in France in 1955 is implemented in more than a hundred countries.

In India, though the process of switch over to VAT from a single point levy of tax was initiated in 1993, the progress gained momentum only in the last three years. One of the main reasons is the inadequate familiarity with VAT. The revised second edition of the book Value Added Tax Across the World has been published at the most appropriate time when the States are grappling with several conceptual and practical issues in implementation of VAT.

The book begins with an exposition of what is VAT and an overview of the different approaches to VAT. The author has documented the experiences of certain developed, developing and transition economies that have either implemented or experimented with VAT in the last four decades. The experiences of these countries in handling the opposition to VAT, containing inflationary effects of VAT immediately on implementation, Zero rating of goods and supplies, Tax credit for capital goods, concessions for retail and small traders, administrative mechanism, fraud detection and other issues have been presented in a user friendly non technical manner.

Review of the experiences of the developed countries provide lessons on planning for effective implementation of VAT. The attempts to introduce VAT at the State level in the US have been well documented by the author. The US, with a federal structure like India, presents an interesting case of not implementing VAT despite several attempts in the last 30 years. The reason why VAT is kept at a respectable distance appears to be the fear of the Federal Government usurping the States' power of sales taxation.

The experiences of developing countries such as Argentina, Brazil, Columbia, Ghana, Indonesia, Thailand, Southern Mediterranean Region and Zambia are very interesting and relevant in the context of India. In Brazil, which has a federal set up like India, the Federal and State Governments levy VAT. The issue of distribution of revenue between the Federal Government and the originating and consuming States still remains an issue though VAT was implemented in 1970s. Ghana presents a study of a failed implementation of VAT in the first attempt in 1995 due to inadequate preparation and failure to educate the stakeholders, though a new VAT Act was enacted in 1998. Implementation of VAT in Indonesia and Thailand have been success stories due to the careful planning and simple system of record keeping, tax rates and tax administration. The consequent high compliance levels and revenue buoyancy had even led to a reduction in corporate taxes.

Economies in transition covered are China, Central and Eastern European Countries, the Russian Federation and the Commonwealth of independent States.

The author has made a detailed presentation of VAT and Fiscal federalism in India. In federal economies such as Argentina, Austria, Germany and Mexico, VAT is centrally administered with a revenue sharing mechanism. The European experience on cross-border trade and the Canadian experience have been presented as a major departure from the traditional approach to the federal VAT. Implementation of VAT in a federal economy is a real challenge and there can be no general prescription. The author recommends that the entire field of commodity taxation to the national Government with a proper revenue sharing arrangement. Each country has to evolve its own system depending upon the circumstances prevailing in each country.

In the chapter on Sales Tax Reform and Progress towards VAT in India, the author has presented two options, that of persuading the States to give set off of the excise duty paid and the second option of levy of commodity taxation by the Central Government or the States. A more detailed discussion of the desirability of either of the two options and the feasibility of the options economically, legally and politically would have been more useful.

The chapter on `Recent Trends in VAT— A Survey' is a very useful update on the VAT practiced in various countries across the world. The last chapter is devoted to the certain areas relating to VAT which lend themselves for improvement.

The book which is a well documented presentation of VAT-related developments globally, would have been more relevant with a detailed discussion of the current issues that confronts us in the implementation of VAT from April 1, 2003 and the lessons to be drawn by India from international experience.

Illustration by D. Murali

Send this article to Friends by E-Mail
Comment on this article to BLFeedback@thehindu.co.in

Stories in this Section
Private health sector — Can it deliver?

Copyright © 2002, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line