Journal Press India^®

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The present study attempts to analyse whether the VAT efficiency has improved after its implementation. Further, we examine the major determinants of VAT efficiency for 17 non-special category Indian states for the period 2000-01 to 2014-15. Using random effect model (as suggested by Hausman test), the urbanization ratio, billing and collection efficiency, bank credit ratio and share of agriculture sector are found to have a favourable effect on VAT efficiency while the share of the unregistered manufacturing sector and share of services sector have an adverse impact on VAT efficiency. Besides, the study also reveals that tax efficiency has come down in the aftermath of the implementation of the VAT in India. As regards policy implication, initiatives by the government for the high level of urbanization, raising billing and collection efficiency, providing more bank credit and encouraging agricultural activities would enhance the VAT efficiency. Since the coefficient of the VAT dummy is negative in the model, the government may revise the existing tax system and adopt a suitable taxation system that solves the problem in the current tax structure.  ​

Keywords

Value Added Tax; Urbanization, Bank Credit; Random effect; Hausman test

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