Value Added Tax Over Sales Tax: The Revenue Impact of Change in Tax Regime for Indian Economy

  • Authors

    • Koushik Kumar Hati Deshabandhu Mahavidyalaya, Chittaranjan
    • Sattwik Santra Centre for Studies in Social Sciences, Calcutta
    https://doi.org/10.14419/hfbndx55

    Received date: June 9, 2025

    Accepted date: August 11, 2025

    Published date: August 16, 2025

  • VAT, Sales Tax, Revenue

  • Abstract

    This paper evaluates the fiscal implications of transitioning from a Sales Tax to a Value Added Tax regime in India, with a focus on state-level revenue performance. Using cross-sectional data from Indian states and a sectoral breakdown of Net State Domestic Product, the study analyzes changes in tax collection efficiency, economic output, and revenue generation before and after VAT implementation. The analysis employs a regression framework to estimate untaxed portions of output, using perceived anti-corruption effort as a key proxy for institutional effectiveness. Results indicate that while VAT initially increased the untaxed share of output—likely due to transitional administrative challenges, it also enhanced transparency and demonstrated a stronger correlation with improved tax compliance over time. The construction sector emerged as a consistently significant contributor to commercial tax revenue, highlighting sector-specific variations in tax performance. Overall, the findings suggest that despite early setbacks, VAT holds long-term potential for improving tax efficiency and state revenue mobilization in India.

  • References

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  • How to Cite

    Hati , K. K. ., & Santra, S. . (2025). Value Added Tax Over Sales Tax: The Revenue Impact of Change in Tax Regime for Indian Economy. International Journal of Accounting and Economics Studies, 12(4), 460-466. https://doi.org/10.14419/hfbndx55