What is adopted now is limited to the sale of goods and not a holistic one as in other countries where VAT is levied on supply of goods and services. Such a lack of integration may lead to litigation. The ideal road map for VAT in India is the following:
Stage-I: State VAT speedy implementation and smooth transition, elimination of CST
Stage-II: National VAT Interstate set-offs of taxes, uniform documentary procedure.
Stage-III: All indirect taxes to be integrated both on goods and services. Limiting the states on VAT on sugar, textiles and tobacco with a ceiling rate of 4% without affecting the additional duty of excise on these items will make the system inadequate.
Tax barriers have fragmented the Indian market preventing the effective use of technology and the reduction in supply chain costs. The more the value addition in the country at different stages, the more will be the adverse impact of such irrational tax structure.
The author is former chief minister of Karnataka & ex-chairman, Tax Reforms and Revenue Reforms Commission, government of Karnataka