The complicated taxation system in India has hindered the free flow of trade. At the same time it has made the "Made in India" goods non-competitive in global markets. For speedy growth of economy and industry, it is important that India has a transparent, simple and broad-based tax system.

India is known worldwide for its complicated taxation system. This is especially true with the corporate world. Many a time, this has proved to be the stumbling block in attracting foreign direct investment. Taxation has played an important role in industrial policy formulation. With the opening up of the Indian economy it has become essential to reform the heterogeneous number of tax rates prevailing across the country. The first generation of fiscal reforms tackled taxes at the central level. Almost after a decade of reforms initiation, the Government wants to implement the second round of reforms aimed at the state level. This includes the much talked about Value Added Tax (VAT).

Though some states have in principle agreed to implement VAT, others have been deferring its implementation. In fact according to the reforms blue print, VAT was supposed to be implemented with effect from April 1, 2001. However, due to unanticipated problems, it was postponed by one year. The saga of postponement continues to haunt VAT as it has again postponed on the request of some State Governments. What is VAT? Why is it not being implemented? What are the fears of the State Governments and what is the level of preparedness? Is there any time-frame within which VAT has to be implemented? And finally what are the benefits of implementing VAT for both corporates as well as the State Governments? These questions are only a few that are part of the ongoing debate on VAT.

With the intention of making the Indian tax system more effective, broad-based and elastic, the Government constituted the Raja Chelliah Committee on tax reforms in 1991. The recommendations of the committee represent a major shift in thinking. Major among the committee recommendations were simplifying income tax returns process, lowering of corporate tax rates, drastic reduction in customs and excise duties, levying taxes on services like insurance, telecommunications etc. There are some more recommendations which have not been implemented. Important among them being implementation of VAT and streamlining tax administration.

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