VAT to be integral to tax system soon: FM

The value added tax (VAT), to be implemented by states from April 2005, will become an integral part of the national tax system within two t...

The value added tax (VAT), to be implemented by states from April 2005, will become an integral part of the national tax system within two to three years, Finance Minister P. Chidambaram has said.

Speaking after inaugurating a cancer institute here last evening, Chidambaram justified the implementation of VAT and said it was in practice in about 138 countries under different names.

Even after the implementation of VAT, the services tax would continue to dominate the Centre’s tax revenues, he said. Currently, service tax contributes about 50 per cent of the Centre’s

tax receipts, followed by the industrial sector at 26 per cent and agriculture sector at 20 per cent, he said.

Story continues below this ad

The world over, VAT exists under the title GST or goods and service tax, the Finance Minister said and hinted that in India too, the GST model would emerge. GST in India would be a bundle of excise duty and service tax, Chidambaram said.

In the years to come, there was a likelihood that only two forms of taxes would become dominant in India, namely income tax and GST, he said. On the income tax front, he said the tax compliance was very poor.