Theoretical concept of VAT

One of the most widely debated issues in Indian Public Finances in current times is undoubtedly the proposed Goods and Services Tax (GST). Perceived as the ‘biggest tax overhaul since independence’ GST promises to fuel overall economic growth and increase tax revenue of the government to a great extent by removing all the impediments that the financial system had been hitherto subject to. According to the Report of the Task Force on Goods and Services Tax (2009), the present system of indirect taxation results in misallocation of resources and lowers productivity and economic growth. Therefore, it is claimed that there is an urgent need of replacing the existing tax system by a new regime of taxation of goods and services The most important issue regarding the structure of proposed GST is whether conventional GST is at all feasible is federal country like India where both the Centre and State has concurrent powers to tax domestic trade in goods and services. This paper puts an attempt to explore the present system of VAT which has been in effect since 2005 and then goes to explore certain critical issues related to GST, its prospects and problems and how it can usher in a new era of government finances of the country