In his Budget speech, Finance Minister Jaswant Singh described its introduction as 'a historic reform of our domestic trade tax system.'

VAT divides the more industrialized states who want it and the less industrialized who don't. The Union government, in need of revenue, is keen to implement it but fear the political consequences.

VAT was due for implementation from April 1, 2003, which never happened.. The next deadline was June 1, but was ignored again. The Centre then promised a 'new roadmap' for VAT.

The empowered committee of state finance ministers on VAT said it favoured a partial introduction of the regime, starting with 11 states that account for two-thirds of India's trade and industry. But the Centre rejected that idea.

This debate is likely to continue in 2004, with the committee scheduled to meet in January to fix a new date for introducing VAT, perhaps in April. But analysts warn that with elections due, it would be doubtful if the government would implement VAT, especially as that would mean ignoring the stiff opposition from within the ruling party and the trading community.

In the end, it is India that bears the loss. An International Monetary Fund publication said that barring Norway and the United Kingdom, 36 countries that opted for VAT mopped up higher revenues.

Text: Shishir Bhate

Complete Coverage: The crisis over VAT