Friday, April 1 2005 16:49 Hrs (IST) - World Time -

Bangalore: India can be globally competitive as a fully integrated market if all States adopt the Value Added Tax (VAT) regime, Raja Chelliah, the architect of the VAT system said today (April 1, 2005).

"If all States adopt VAT, and at the central level there is already VAT. India will become a fully integrated market and this gives us a huge advantage," Chelliah, currently the Chairman of Madras School of Economics, said here at the formal switch over to the VAT regime by Karnataka.

A noted economist, Raja Jesudas Chelliah headed the committee on tax reforms in the early 1990's that recommended implementation of the VAT system for a uniform tax regime.

He emphasised that India was not just competing with the developed nations like the US and in Europe, but also with low cost emerging nations in Latin America and China.

"We should take advantage of the uniform tax regime so that the economy of scales can be realised. This gives us a competitive advantage in the world economy," Chelliah said.

He said the new tax regime, if adopted by all States, will also pave for a common market in the South Asian region and highlighted the need for phasing out central sales tax eventually.

Chelliah said the VAT regime was evolved to ensure that "it should not increase costs", but the tax should fall on the value of the tax and not on the tax paid earlier.

Lauding Karnataka for switching over to the new regime, he said, "The fact that Karnataka is going with other States shows that the State is deeply committed to cooperative federalism".