Abstract

Taxation is an important tool of fiscal policy which fills the revenue needs of the government. The introduction of different forms of tax worldwide has rekindled the research in the domain of public finance. The introduction of Value Added Tax has attracted a lot of research in the recent past. The comprehensive review of indirect taxation particularly VAT reveals that Value Added Tax had been mostly studied at national level. While the Value Added Tax has been implemented at both national and sub national level, worldwide research on sub national level is limited. This paper fills this void and tries to examine the revenue impact of Value Added Tax in Indian context particularly for the state of Madhya Pradesh. Using regression technique on data collected for Madhya Pradesh public finances, we try to examine the revenue performance of Value Added Tax in Madhya Pradesh. Madhya Pradesh implemented Value Added Tax in April 2006. Our analysis shows that not only Value Added Tax has performed better than the sales tax which it replaced, but also it has been successful in contributing to MP’s own revenue performance.

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