Modern sales tax was evolved during the great depression and the post-world war II period, although sales tax existed even in the early period of the civilized society1. Spain adopted the general sales tax as a national tax in 1342 and retained it for about five centuries. France introduced the general sales tax in the fourteenth century for a short period. Again, in 1871 that country levied payments tax which was in effect, a low-rate general sales tax.
In the European countries, sales tax was introduced as an emergency measure during world war I. Italy and Czechoslovakia initiated the payment tax in 1919. Hungary, Russia, Rumania, Belgium and Yugoslavia imposed it in 1921; Luxemburg in 1922; Poland and Austria in 1923. The Netherlands embarked upon sales tax in 1933 after the great depression.2
Canada launched the Canadian manufacturer’s sales tax in 1920. Australia adopted the sales tax in 1930 to offset the decline in revenue from the custom duties. Newzealand also entered the sale tax fields in 1933 for similar reasons. In Latin America, sequence: Cuba in 1922, Brazil in 1924, Ecuador in 1925, Uruguay in 1928, Argentina in 1931, Mexico in 1932, and Chile in 1943.3
In India, references to sales tax are found in Kautilya’s Arthasastra. Kautilya states that the superintendent of Merchandise (Panyadyaksha) was required to collect, inter alia, compensation fee (Vyaji) on the sale of royal merchandise which was imposed, according to the manner of sales, to the extent of 1/10th on the goods sold by weight and 1/11th on the goods sold by counting.4
The origin of modern general sales tax is traceable to the Government of India Act, 1935.5 In the white paper of 1933, taxes on the sale of commodities and on the turnover were mentioned as a possible source of provincial revenue. Entry 48 on list II (Provincial Legislative List) of the 7th schedule to the government of India Act 1935, granted exclusive power to the state government to impose tax on the sale and purchase of goods other than newspapers within their states. Under section 297(1) (b) of this Act, inter-state sales and purchase tax was placed on the Union list. But central sales tax is administered by the state governments and the proceeds are also retained by them.6
The province of Bombay was first to levy a tax on the sale of tobacco in a limited way in 1938. in the same year, the central provinces also levied a retail tax on motor spirits and lubricants.7
In 1948, when Himachal Pradesh was union territory “East Punjab General Sales Tax Act 1948,” was implemented upto 1968. In 1968 Himachal Pradesh government had its own Himachal Pradesh General Sales Tax Act 1968, and it was implemented on 1st April 1969.
Before 1st January 1991, Himachal Pradesh government had adopted the mixed policy of sales tax. The first stage tax would be collected on total 37 goods only. And on remaining there was final stage sale taxation. From 1st Jan 1991 Himachal Pradesh government has adopted first stage taxation policy. Himachal Pradesh is the first state to implement this policy. In 1977, the central government has called meeting of Finance ministers of all states and all the states agreed for the uniformity in rate structure, that was to be implemented from 1st April, 2002.8
The origins of the Indian experience with VAT can be traced to 1986 when V.P. Singh the Finance Minister in the Rajiv Gandhi Government introduced MODVAT (MODVAT VAT) . MODVAT was aimed at applying the VAT method in manufacturing to replace the central excise.9
Useful development took place in the year 1994-95 when the coverage of MODVAT Was extended to capital goods. In the year 2000-01 Government of India further introduced CENVAT as a replacement of MODVAT.
In the budge 2003-04 Finance Minister has proposed to phase out Central Sales Tax (CST). Union budget also proposed compensate the states for loss of revenue from the reduction of CST @ of 100 per cent of the loss...
References: 1. Buehler, A.G., General Sales Taxation, (1932).
2. Jacoby, N.H., Retail Sales Taxation, (1938).
3. Due, John, F. Sales Taxation, (1957).
4. Directorate of CPE, “The VAT Options,” The Charted Accountant (April, 1998).
5. Kumar, Ravi, “Value Added Tax Issues and Concerns,” The Charted Accountant (September 2002).
6. Mukerjee, Dilip Kumar, “introducing Value Added Tax in India, The Management Accountant (April 2003).
7. Dhand, Vipin, “Revenue will Fall,” The Tribune (April 16, 2003).
8. Grawal, N.S. “Inspector Raj to Go, The Tribune (April 16, 2003).
9. The Competition Master, “VAT or Not to VAT: The Dilemma of Value Added Tax, “(May 2008).
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