ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Is There a ‘Money Machine’ Tax?

This analysis based on more than four decades of time series data on sales tax/value added tax/goods and services tax in India does not reveal any nonpareil revenue potential of VAT or the VAT-based GST system.

‘Fiscal Federalism’ in India since 1991

The “reforms” in 1991 laid out a new trajectory in which federalism was dichotomised into two parts—political and fiscal. The fiscal was privileged and used to undermine the political. Fiscal federalism in India since 1991 rests on the contradictions generated by the theoretical infirmities of the sound finance paradigm along with a concerted undermining of federal provisions. This political drive is in keeping with the agenda since 1991, eroding the relative autonomy of the state to turn it into a facilitator of a macroeconomic expansion process in which the wage–surplus distribution becomes more and more favourable to capital.

VAT in an Impasse

By taking the position that a patchwork VAT will not serve the purpose and threatening even to go back on its commitment to compensate the states for possible loss of revenue, the centre has created an impasse over the introduction of VAT. This may be the right time to reflect on VAT once again and consider seriously whether it will be at all worthwhile having the tax in the form it is being sought to be introduced.

Taxing Services: Issues and Strategy

This paper attempts to analyse the issues involved in extending consumption taxes to the services sector. Although the share of services in GDP is over 50 per cent, its contribution to tax revenue is not commensurate. Further, the prevailing taxes on services are overlapping and haphazard and are not conducive to the evolution of a coordinated value added tax at central and state levels. Besides, it is important to extend the tax also for reasons of revenue. The paper argues that for evolving a rational consumption tax system it is important to levy a general tax on services rather than continuing with the selective taxation prevailing at present. However, there should be a small but well defined exemption list and a negative list to avoid taxing services arising from the sovereign functions of the state and services of a meritorious nature. There should also be a threshold to exclude small service providers. At the central level it is also suggested that by 2004-05 service tax should be merged with the MODVAT to evolve a manufacturing stage value added tax. In the case of states, it is argued that to evolve a destination based retail stage value added tax, it is necessary to give concurrent powers to tax all services subject to certain safeguards to ensure orderly development of the consumption tax system.

VAT: A Closer Look

In an irreverant look at VAT, the darling of tax pundits, the author questions the supposed virtues of the tax-neutrality, avoidance of cascading and zero-rating of exports - and wonders whether more genuine tax reforms should not be considered in preference to VAT.

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