Since VAT is a multi-level tax that gives inputs to sellers for their raw material costs, it acts as a counter check for the tax paid by each preceding trader. India has a large un-organised market, especially agro-based industries, and here a large number of transactions went unrecorded. The menace of stock transfers added to the problem of tax evasion. VAT cleaned up the format. But that is still a side story.

The big success has been the way VAT has led to the emergence of a national-level common market for almost all non-agricultural products. Commodities for consumers are now taxed at a uniform 12.5 per cent, while only some intermediate goods attract a 4 per cent rate. Since every state is on the VAT platform, manufacturers, domestic and foreign, do not need to wrestle with different rates of tax for products moving across states. This in turn reduces inventory and warehouse costs for them and makes companies respond to demand conditions faster, while making the states richer.

Most countries have introduced VAT to reform their indirect tax systems. The US remains one of the rare exceptions to the rule. Indian businessmen have also found that without VAT, they cannot get a tax refund for their products from abroad. The lack of a VAT network had hurt the growth potential of the domestic companies. The UP government’s decision has made it certain that the time table for the next change in tax reforms would be maintained.