Change the old tune

No one should have any doubts whatsoever that value added tax, or VAT, is a desirable system of taxation. It is a long overdue measure requi...

No one should have any doubts whatsoever that value added tax, or VAT, is a desirable system of taxation. It is a long overdue measure required to integrate India into a single unified market. It is a form of taxation where the incentives to comply are more self-enforcing than in any rival form of taxation. It will, on an average, lower the rates of taxation while increasing aggregate collection. Its introduction has been debated for over a decade. It has rightly been subject to our proverbial million negotiations. All political parties that have held office have agreed to it; an Empowered Committee of the States cleared it, allaying fears of its impact on fiscal federalism. If 21 states agreed on Thursday to implement VAT from April 1, much of the credit for this consensus should go to West Bengal8217;s finance minister, Asim Dasgupta. As the chair of the Empowered Committee of the States, he has had to convince not just his own colleagues within the CPM on the issue, but players across the political spectrum. The fact that he has emerged fairly successful in this project is a testimony to the growing pragmatism of his party.

Of all the actors in this tableau, it is the BJP that has behaved the most shabbily. Its grandstanding is, of course, prompted largely by the desire to embarrass the government of the day. But a national party is required to look beyond narrow political interests in the greater national good. The BJP has failed this test and it can only be hoped that better counsel prevails and it reconsiders its present position. Meanwhile, the government could do more on the administrative side to allay fears and spread information. In particular, there needs to be greater clarity on the list of exempted items. Traders could have benefited from the technical help that would make the record keeping necessary for VAT easy and simple. Such measures would not have removed the largely self-interested opposition from traders, but it could have helped defuse it. Traders and the government need to collaborate more closely on implementing a VAT regime as painlessly and efficiently as possible. Instead of constantly debating the first principles of VAT, both the government and traders would do well to concentrate on the modalities of implementation.

The politics of VAT exemplifies the weaknesses of India8217;s policy making regime. Our policies remain hostage to the whims of veto groups who refuse to take an all-things-considered view of the matter. So much energy is frittered away on the politics of policy that there is little time or space left for the fine details of implementation. It is high time we changed this trend. The question should not be: Whether VAT? It should rather be: How fast and how effectively?