UPSC Prelims 2000 Q7: Indian Economy – Taxation
The Standing Committee of State Finance Ministers recommended in January 2000 uniform
rates across the States in respect of
- (a) value - added tax
- (b) sales tax
- (c) stamp duty and registration fees
- (d) agricultural income tax
Answer: (b) sales tax
Explanation
What the State Finance Ministers made uniform in January 2000
| Tax | Position in 2000 |
|---|---|
| Sales tax | Uniform floor rates across States from 1 January 2000, to end the 'rate war' |
| Value-added tax | Came later — most States moved to VAT from April 2005 |
| Stamp duty and registration fees | Left to each State |
| Agricultural income tax | A State subject, levied by only a few States |
In the late 1990s States kept cutting sales tax rates to pull trade away from each other, a so-called rate war.
The State Finance Ministers, meeting with the Union Finance Minister, agreed to uniform floor rates of sales tax from 1 January 2000.
The same forum became the Empowered Committee of State Finance Ministers, which steered the move to VAT (2005) and later the GST.
Answer: (b) sales tax.
Why each option is right or wrong
- (a) Incorrect. VAT was introduced by most States only from April 2005.
- (b) CORRECT. Uniform floor rates of sales tax were recommended from January 2000.
- (c) Incorrect. Stamp duty rates were not made uniform at that time.
- (d) Incorrect. Agricultural income tax was not part of the agreement.
Key point
Empowered Committee of State Finance Ministers (2000) → VAT 2005 → GST 2017.
Remember
January 2000: uniform floor rates of sales tax across States.
Common mistakes
- Choosing VAT, which was discussed but came only in 2005.
- Forgetting the rate war among States that triggered uniform rates.
- Confusing the State ministers' forum with the Finance Commission.
Exam tip
January 2000 = sales-tax floor rates; April 2005 = VAT.
Sources
- Ramesh Singh — Indian Economy, chapter 'Taxation in India' (sales tax reform and VAT)
- Ministry of Finance — Economic Survey 1999-2000, chapter 'Public Finance'