Although some have been moving towards it, others have done precious little. It is now agreed to allow a transitional period of under a year and half after which the whole country will adopt this more rational system which will replace sales and excise taxes. But it is doubtful whether all the states will indeed move at the same pace towards the deadline especially since some will be preparing seriously for VAT virtuallyfor the first time.

Many qualms remain about the loss of revenue despite assurances from the Union Finance Minister that all losses will be compensated. Some-thing should be done to get over this hump. Even with the best technical help made available to them, the process of changing over, including computerisation and training finance and tax department staff, is unlikely to go smoothly. A trouble-shooting mechanism should be put in place.

All said, however, there is a new thrust behind tax reform and it is welcome. A deadline has been set and arrangements are being made to prod states to meet it. Review meetings and a monitoring committee which is being set up should help identify and iron out problems in time. Whether the transformation will actually take place on schedule will depend on how much pressure can be exerted on slow movers. One chief minister is of the opinion that penalties should be imposed on states which fail to comply with tax agreements. It may eventually come to that but knowing howpolitics has a habit of undermining the best laid plans, peer pressure may have to suffice.

State chief ministers have agreed sensibly to end the tax wars that have been playing havoc with their revenues. The first phase of economic liberalisation led to the outbreak of competition between states, surely a very healthy development. But tax incentives and holidays, generously used in the bidding for new investment, soon got out of hand. It was an easy fallback for states which were hard put to offer high quality infrastructure. Pursued to its logical conclusion this sort of competitiveness would have made it increasingly difficult for states to levy taxes and would have hastened bankruptcy. The vicious circle of tax concessions, falling revenues, lack of investment in infrastructure and more tax concessions to compensate for infrastructural shortcomings had to be broken. In the end common sense and prudence have prevailed and led to the kind of collective decision now taken to abolish tax incentives and setfour uniform floor rates across the country by January 1.