The revenue productivity of India's subnational VAT

Abstract

Skepticism exists regarding the revenue potential of a subnational value-added tax (VAT). India is one of only three countries to embrace a subnational VAT, and it did so between 2003 and 2008. We analyze the impact of this historic policy reform on revenue productivity and find that implementation of the tax yields a 13 percent increase in sales tax revenue for India’s more developed states. This analysis is unique in providing empirical evidence of a revenue impact of a major tax policy reform for a subset of subnational governments in a developing country.