VAT's up: Collection in Delhi jumps 35%

After it introduced VAT in lieu of sales tax, collections for the Delhi government rose by more than 35 per cent.

In comparison, when Delhi had the old sales tax system, collections grew by under 11 per cent from 1999-00 to 2004-05.

In the case of Punjab, post-VAT growth for the period 2004-05 to 2005-06 in revenue was over 27 per cent "" sales tax collections growth in the five-year period prior to 2005-06 were under 13 per cent.

When all the states that have moved to VAT are taken together, VAT growth is nearly 14 per cent, as compared to 13 per cent for sales tax collections in the previous five years.

This is despite the much lower tax rates brought in with the introduction of VAT. In the case of Maharashtra, for instance, the top sales tax rate was more than 17 per cent in the pre-VAT days once the turnover and other levies that were tagged on to the basic rate were included. In the VAT regime, the top rate is 12.5 per cent.

In other words, the taxable base has gone up since VAT requires all suppliers in the chain to file their returns in order for everyone to claim tax credits

Some part of the hike is also due to the overall buoyant economic conditions, as even the states that have not introduced VAT have seen a higher growth in their sales taxes.

Uttar Pradesh, for instance, saw its sales tax collections rise 29 per cent in 2006-07 as compared to a growth of 14 per cent in the five-year period before this.

The impact of VAT, however, has been uneven with states like Maharashtra showing a fall in growth from over 13 per cent in the sales tax days to 11 per cent in the one year post-VAT period.

Bihar actually saw collections fall marginally as opposed to a 15 per cent hike in the old sales tax days.