The word tax is derived from the Latin word ‘taxare’ meaning to estimate. Tax policies play an important role on the economy through their impact on both efficiency and equity. The replacement of the state sales taxes by the Value Added Tax in 2005 marked a significant step forward in the reform of domestic trade taxes in India. The goods and services tax (GST) is aimed at creating a single, unified market that will benefit both corporate and the economy. India has been trying to implement the Goods and Service Tax (GST) for last few years but due to political and state government autonomy issues the federal government has been unable to make it a law. Intention to implement this was declared in 2008 and it was supposed to be in existence from April 2010. 85 percent of the revenue of state governments is generated from the indirect taxes on goods and services and sales tax alone accounts for 61percent of the total revenue. Introduction of state level value added tax in 2005 led to uniform tax rates and eliminated cascading tax rates but it is still a step towards more comprehensive reforms as that of GST. In this paper, author tries to investigate various opportunities and challenges lay ahead for the state government in relation to GST in India.
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