CHAPTER - VI

^/alut Addedi Tax;

Perceptionof Dealer
 "The tax which each individual is bound to pay ought to be
certain and not arbitrary. The time of payment, the manner of
payment, tha quantity to be paid ought all to be dear and plain
Jo the contributor and to every other person so that the
payer is not put in power of the tax gatherer."

British Economist-Adam Smith

his chapter records the perception o f dealers (the most significant

T stakeholder) towards various dimensions o f VAT in the capital cities

o f Srinagar and Jammu.

Dealers are the key players in any form o f business. They constitute a
core group in an indirect tax system. It is their responsiveness and the
compliance which determines the success or otherwise of a tax system. They
feel the impact and not the incidence of a tax as they do not actually pay any
thing out o f their pockets. They simply act as the collection agents on behalf
o f the government. Interestingly, it were the traders who initially opposed
the implementation o f VAT on the grounds o f harsh clauses, increased
record maintenance and the fear that even an iota of value added will attract
tax. It is said that initially VAT generated more controversy than the
revenue. However, sensing the non-compromising and non- yielding stand
and mood o f the government, gradually the business community withdrew
its opposition.

In order to record the perception of dealers in relation to Value Added

Tax system in the two capital cities viz. Srinagar and Jammu, a total o f 8
dimensions / constructs spread over 37 variables have been put to analysis.
The dimensions are:

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 1) DESIRA8JU7Y
2 ) STRUCTURE
3 ) PRiCSSTABiUTY AMO SCOHOMtC W tlF A X f
4 ) 40M/J1UTRATION
5 ) IMPtEMSMTATKHt
6 ) COMPLIANCE
7) NEUTRAUTV
8 ) HARMONIZATION

The data regarding the perception o f dealers about these dimensions

have been collected using 5-point, (5<-»l) Likert type scale as already
discussed in chapter 3. The survey results are presented under Descriptive,
Rational and Inferential Statistics as follows:-

DESCRIPTIVE STATISTICS
Dealers’ Perception Regarding Desirability
To examine the Perception o f dealers vis-a-vis, the desirability
dimension o f VAT, a group o f 4 variables/Statements similar to the one used
in case o f consumers has been used for analytical purposes. The analysis is
presented in table 6. 1 .
TABLE: 6.1
D EALER S’PER CEPTIO N R EGARDING D ESIR ABILITY
Srinagar Jammu Overall
Variables/statements
Mean S.D. C.V Mean S.D. C.V Mean S.D.

Shortcomings of sales 1.309 37.51% 4.27 1.023 23.9% 3.88 1.24

3.49
tax system
Rationalization of 1.339 37.82% 4.31 .984 22.83% 3.93 1.24
3.45
Commodity Taxation
Revenue 4.41 .861 19.52% 4.65 .636 13.68% 4.53 0.76
Considerations
Harmonization of
Centre-State Financial 4.19 .951 22.70% 4.45 .756 16.99% 4.32 0.87
Relations
Desirabi&ty(1+2+3*4f 3J1 120 1X69% 442 J7D 19.86% 4.17 1.11
Source: Scholar's survey o f the sample Cities.
# represents the S. No of statements in Oie questionnaire shcmn in appendices.

213
 The joint sample mean score of 4.17 portrayed in the table 6.1 for the
dimension ‘Desirability’, is the expression of dealers fair agreement with the
dimension as a whole. Among the various items o f the dimension reflecting
the necessity o f adoption o f VAT, the most notable one as per the highest
mean score o f 4.53 is the item o f revenue consideration, indicating that the
consideration o f mobilization of more revenue is the main reason behind the
adoption o f VAT in the state. This observation is similar to that o f shollapur
and sunagar (2006). Another variable in order o f highest mean score is the
harmonization o f Centre-State financial relations with (4.32) which is a
manifestation o f the dealers strong belief that the objective o f harmonization
o f Centre-State financial relations through the adoption of VAT is another
important consideration. Moreover, the joinl sample mean scores of 3.93 and
3.88 signify the dealers fair amount o f agreement with the facts that VAT
being a measure towards rationalization of commodity taxation, is aimed at
eliminating the evils o f sales tax system, which despite its major conribution
to state exchequer, had rendered it worthless and made it a subject o f
criticism among both the tax payers as well as the tax collectors.

The perception o f Srinagar based dealers in view of the mean scores

4.41, 4.19, 3.49 and 3.45 is no more different from the collective perception
o f dealers. However, the Jammu based dealers seem to be highly convinced
regarding the desirability of adoption o f VAT which is clear fron the mean
scores 4.65, 4.45, 4.31 and 4.27 (significantly above the joint mean scores).
In the era o f globalization, VAT system is inevitable particularly for keeping
uniformity in the rates o f taxes on sales (Bahir 2006). According to Gupta
(2006) an economically accepted tax sucli as VAT is highly desirable.
Thakur, et.al (2006) believe that there is no choice for the trade but to accept
and implement VAT. This finding also corresponds to the conclusion of
Sandford (1981) that the adoption of VAT in the countries of European
Union was a necessity as in its absence, the success of common market
experiment would have been seriously hampered. However, there seems to

214
 be a considerable perceptual gap between the respondents o f the two sample
cities in view o f wide fluctuations in the mean scores and the corresponding
co-etlicient o f variations. The positive perception o f Jammu based dealers
can be attributed to the effectiveness o f awareness and education
programmes under-taken by the authorities o f the tax department coupled
with the sense o f responsibility towards the state and commitment for the
welfare o f the Society demonstrated by the dealers o f Jammu city.

Dealers’ Perception Regarding Structure

A number o f variables/ items have been put to appraisal to know the
perception o f dealers about the dimension “structure” o f VAT. The variables
in question include Simplicity o f theoritical framamework, fairness o f Rates
o f tax, complexity o f computational mechanism, mechanism o f assessment,
convenience in inter-State trade and complex nature o f accounting. Table 6.2
presents a glimpse o f dealers’ perception regarding structure o f VAT:

TABLE 6.2
DEALERS’ PERCEPTION REGARDING STRUCTURE
SRINAGAR JAMMU OVERALL
Variables/Statements
Mean S.D C.V Mean S.D C.V Mean S.D
Simplicity of Theoretical 1.33 48.36% 3.99 1.003 25.14% 3.37 1.33
2.75
Framework
Fairness of Rates of Tax 2.69 1.259 46.80% .185 1.054 27.38% 3.27 1.30
Complexity of
Computational 2.97 1.282 43.16% 2.56 1.046 40.86% 2.77 1.19
Mechanism
Mechanism of 17.12% 4.15 .497 11.98% 4.13 .61
4.10 .702
Assessment
Convenience in Inter- 3.86 .811 21.01% 3.61 1.12
3.36 1.312 39.05%
State Trade
Complex Nature of 17.24% 4.75 .714 15.03% 4.59 .76
4.42 .762
Accounting
Structure 28.24% 1.22
3.38 1.31 38.75% 3.86 1.09 3£3

Source: Scholar's survey o f the sample Cities.

215
 In view o f the overall sample mean score of 3.63, the dealers have
expressed a reasonable amount o f agreement with the structure dimension of
VAT. The variable “Complex nature of accounting ’14has recorded a highest
mean score o f 4.59 indicating that from the accounting point o f view, Value
Added Tax system is a complex system as it requires a lot o f paper work and
accurate accounting. VAT is based on a proper, complete and systematic
record o f transactions. There is no room for primitive methods o f accounting
under VAT. For dealers apart from the accounting trouble, the higher
compliance costs involved in proper accounting, pose a persistent threat to
their earnings and that is why the maintenance of proper accounting records
pinches them. In Jammu and Kashmir most o f the traders prepare the
accounts manually and are hesitant to adopt the computerized accounting for
fear o f heavy investments and lack o f knowledge o f computer skills. The
finding is identical to the observation of Yasmeen (2004). Another important
variable which has caught the attention o f dealers prominently, is the
assessment mechanism (Mean score being 4.13). The dealers opine that self
assessment under VAT is a hollow slogan and merely a bait as otherwise
there are provisions for audit assessment and re-assessment under the VAT
Act, 2005 in case they fail to furnish returns for any tax period and in case
the Assessing Authority believes that some turnover of a dealer has escaped
assessment or has been under assessed or assessed at a lower rate. After the
adoption o f VAT, the dealers feel relieved from the inconvenience o f “tax
computation” to which they were highly exposed under the previous tax
regime as they feel that the computation of tax liability is simple under VAT
(Mean score being low at 2.77). This finding is synonymous with the finding
o f Jerinabi and Santhi (2006).

Further, the mean scores of 3.37, 3.27 and 3.61 recorded at the joint
sample level, suggest that the dealers have a tendency to accept the
simplicity in overall theoretical structure and the reasonableness and
normalcy in the rate structure of VAT. This finding matches with those of

216
shollapure and Sunagar(2006) and Dutta (2006). Besides, with the adoption
o f VAT in the state, the dealers feel no inconvenience in their inter-state
trasanctions, thus acknowledging a fundamental feature of VAT.

The overall mean score 3.38 o f the independent sample city Srinagar
represents a mixed reaction o f dealers to the dimension o f structure. Nature
o f accounting and assessment mechanism under VAT are the only two
elements in respect o f which their opinion matches with that o f the whole
group. The individual variable mean scorcs 2.75 and 2.69 (being lower than
3 on measurement scale) are a manifestation of dealers’ disagreement with
the simplicity o f theoritical framework and reasonableness of rate structure
o f VAT. However, the Srinagar city dealers feel no difficulty in the
computation o f tax liability under VAT (mean score being 2.97). On the
whole, the perception o f Srinagar based dealers as agianst Jammu based
dealers about the structure dimension o f VAT is relatively poor.

The Jammu based dealers in view of the overall mean score of 3.86
(marginally higher than the joint sample score of 3.63) seem to have a better
perception about the overall dimension o f structure. Their perception about
the dimension in question ranges between (agree and strongly agree) on the
measurement scale. Further, from the mean scores 3.99 and 2.56 awarded to
the items o f simplicity and computational mechanism, it can be deduced that
the dealers in Jammu city have acquired a better understanding about both
the theoretical as well as the practical frame work of VAT which can be
attributed to the effectiveness of fiscal authorities and the Traders
Associations in launching the awareness campaign in the city coupled with
the dealers lust for knowledge to learn the intricacies of this new tax system.

As suggested by the table results, there is a wide perceptual gap

between the dealers o f two cities which i s evident from the respective Co­
efficient o f variations.

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 Dealers’ Perception Regarding Price stability and Economic welfare

In order to measure the perception o f dealers on Price stability and

economic welfare dimension o f VAT, the following attributes were
identified:

# Control on rise in Prices;

# Increase in income; and
# Promotion o f exports.

Table 6.3 statistically analyses the dimension of Price Stability and

economic welfare.
TABLE:6.3
D EALER S’ PER CEPTIO N REGARDING PRICE S TA B IL ITY
AND ECONOM IC W ELFAR E

SRINAGAR JAMMU OVERALL

V ariaU M /S tatem eats
Mean SJD C .V Mean SJD C .V Mean SD

Control on rise in Prices 2.77 1.308 49.22% 3.19 1.097 34.39% 2.98 1.22

increase in Income 2.56 1.313 51.29% 3.03 1.064 35.12% 2.80 1.22

Promotion of Exports 3.18 1.075 33.81% 3.76 0.587 15.61% 3.47 .91

P rice staM R y and

Econom ic w elfare 2M 1.26 4437% & 33 0.99 29.73% 3.09 1.16
{11+12*13)
Source: Scholar's survey o f the sample Cities.

The Perusal o f table reveales that at the combined mean score o f 3.09,
the dealers as a joint group seem to be reserved in their conclusion about the
price stability and welfare orientation o f VAT. The significant contribution
to the overall mean Perception is from tht “Promotion o f exports” variable
with the highest mean score 3.47 implying that VAT is fairly export friendly
as it has the power to promote the competitiveness of the goods being
exported because o f the provision o f zero rating. This finding has a world-

218
wide recognition. VAT is an efficient system o f taxation as it promotes the
exports (Lekhi, 2005) and (Bushan, 2005). However, the dealers of the joint
sample with the mean scores 2.98 and 2.80 assigned to the variables “control
on rise in prices and increase in income” categorically refute that the
imposition o f VAT in the state has succeeded in controlling the rise in prices
and has in any way resulted in an increase in the income of dealers. The
finding dose not need to be taxen seriously as many European Countries
during the intial phase of VAT implementation, have witnessed a steep rise
in prices. But once their transition period was over, the effects of fall in
prices were felt by the society (Bushan, 2005).

The dealers o f Srinagar city in view of the mean scores 2.77, 2.56,
3.18 for the individual variables and the overall mean score 2.84 have a
negative perception about the dimension. T hey are firm in their belief (With
the mean scores 2.77 and 2.56) that VAT has neither succeeded in checking
the price rise, nor has it increased their income in any way. The Jammu
based dealers have almost a similar view about these two variables.
However, they (the dealers of Jammu city) have shown a marginal tendency
towards their positive opinion about these variables which is reflected by the
mean scores 3.19 and 3.03 respectively. This is mainly due to their (i)
reasonable lust for profits which in turn gives a boost to their sales and (ii)
sense o f responsibility towards the society. During the survey, out o f 150
dealers interviewed in the Jammu city, about 75% dealers revealed that
maximization o f profit is not as important to them as the retention of
customers. This is a clear indication o f their sense of responsibility towards
the society.

Again in view of the calculated co-efficient o f variations, a

remarkable gap appears to exist about this dimension in the perception
between the dealers o f two cities under study.

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 Dealers’ Perception Regarding A d n a is tratio*

Effective and efficient administration is a key for the success of

Value Added Tax System. In fact, it is the administration on which the
success or failures o f a sound tax system depends. A good tax system should
be free from administrative wrangles. It should be based on effective and
sincere administration (Purvery and kumar, 2006). Effective and efficient
administration o f a tax needs Co-ordination and Co-operation between all
concerned stakeholders.

Administration dimension o f VAT measures the extent o f dealers

relief, credibility o f authorities, provisions regarding registration, simplicity
in filling up o f the VAT return forms, arrangement for acceptance o f returns,
treatment o f excess tax payment and taxes paid on unsold goods. The
dimension has been analysed statistically in table 6.4.
TABLE 6.4
D EA LER S ’ PER C EPTIO N R EGARDING ADMINISTRATION
SRMAGAR JAMMU OVERALL
**-- --------sf----------------
vanaow dom nem
M en S i) CV Mean S i) C .V Mean S J)

Convenience to the Dealers 4.58 .616 13.45% 4.64 .422 9.09% 4.61 .63

Credibility Of Authorities - A
Stimulant To Better 4.05 1.077 26.59% 4.56 .670 14.69% 4.30 .93
Compliance.

Simplicity in the Process and

3.22 1.345 41.77% 3.75 1.123 29.95% 3.49 1.27
Provisions of Registration.

Simplicity in Filling up of VAT

3.41 1.419 41.61% 3.77 1.142 30.29% 3.59 1.30
Return Forms

Arrangements for Acceptance

3.07 1.219 39.71% 3.39 1.210 35.39% 3.23 1.22
of VAT Returns.

Adherence to Rules Regarding

Excess Tax Payment and Tax 3.51 1.225 34.90% 3.91 .785 20.07% 3.71 1.05
Paid on Unsold Goods.
A dm M »tratton(14+15»16»17
3.64 1.19 3249% 400 1.03 25.75% 3.82 1.12
+ 18*49)
Source: Scholar's survey o f the sample Cities.

The mean scores of the various items o f the dimension

“Administration” at the joint sample level have ranged between 3.23 to 4.61,

220
indicating that the perception o f dealer * regarding the dimension falls
between the better and the best regions, w hile as the aggregate mean score
3.82 o f the dimension confirms the agreement of dealers about the overall
process of administration. The analysis of individual items reveals that with
the highest mean score of 4.61, the dealers have expressed their anguish over
the inconvenience caused to them by the authorities under the garb of
frequent irritating inspections. This finding is in contrast to the observation
o f Bushan (2005) about the least interference of authorities and an end to the
dealers trips to the department envisaged by the basic philosophy o f VAT.
These irritating inspections and the dealer’s trips to the department are a
negation o f the basic principle o f least interference and the canon of
convenience. Further, the mean score 4.30 indicates that the credibility and
honesty o f administrators is indespensable for generating voluntary
compliance from the dealers. This finding is in agreement with the
observation in respect of VAT made by purohit(2006). With the next higher
mean score 3.71, the dealers are convinced about the adherence to rules by
the authorities in respect o f treatment o f excess tax payment if any, and the
taxes paid on unsold goods. Further, the dealers of the joint sample with the
mean scores 3.49, 3.59, and 3.23 have reasonably endorsed the simplicity in
the process and provisions of registration, simplicity in understanding and
filling up o f VAT return forms and the Department’s improper and
inadequate arrangements for the acceptanc e o f their returns. This finding
bears its relevance to the observation mad^ by Jerinabi and Santhi (2006).
However, a big chunk of dealers utilises the services of Professionals in
filling up o f return forms.

At the inter-sample level, the dealers of city Srinagar in view o f the

mean scores 4.58 and 4.05 assigned to he convenience and credibility
variables hold an opinion similar to that of the joint sample respondents
about these variables. Moreover, low scoring o f the rest of items of the
dimension can be attributed to the greater inconsistency (standard deviations

221
and the corresponding Co-efficient o f variations being constantly higher) in
the opinion o f intra-group respondents. Fowever, the aggregate mean score
3.64 retlects the dealers’ fair amount o f agreement with the overall picture
about the process o f administration of VAT.

The descriptive statistics pertaining to Jammu city respondents is in

line with the results emerging from that o f the combined lot. The combined
mean score for all variables (4.00) and the individual variable highest mean
scores of 4.64 and 4.56 carrying low standard deviations and the corresponding
Co-efficent o f variations in respect of the variables “convenience to the
dealer and credibility of administration” are in tandem with the results of
joint sample and the independent sample city Srinagar. However, in respect
o f the rest o f variables pertaining to the dimension under examination, their
perception as indicated by the mean scores 3.75, 3.77, 3.39, and 3.91 respectively
seems to be far better than the joint and Srinagar sample respondents. This
perceptual difference can be the outcome of a comperatively more favourable
and cordial attitude o f the authorities with the Jammu based dealers than
their Srinagar counterparts. However, ihe intra-sample respondents of
Jammu city seem to be highly divided in their perception about the variable
“arrangement for the acceptance o f returns” as the corresponding standard
deviation (1.210) and the resultant co-efficient of variation (35.39%) are
very high when compared to other variables of the dimension.

Dealers’ Perception Regarding Implementation

Implementation of a tax is an important area which requires the full,
whole- hearted and the dedicated involvement of tax officials. It revolves
round the obligations o f the fiscal authorities towards the tax payers. A wide
range of issues like the education and training of tax officials, education of
potential tax payers about their rights and duties, launching o f programmes
aimed at creating awareness among the stakeholders, Computerization,
application o f latest technology and e-governance in tax administration etc;

222
 need to be stressed upon for the effective and efficient implementation o f a
tax system.

The dealers’ perceptipon about the impiimentation dimension/

Construct o f VAT merits emphasis on the following variables:

^ Responsiveness of the department to provide the desired

information to dealers;
+ Training of tax officials;
Mechanism for redressal o f grievances o f the dealers;
^ Need for building a strong infrastructure in the department;
Effectiveness in creating awareness among the tax payors; and
^ Need for holding regular interactive sessions with the dealers.

The descriptive statistical analysis with regard to this dimension is

presented in table 6.5.
TA B L E 6.5
D EALER S’ PER CEPTIO N REGARDING IM PLEM EN TATIO N
SRINAGAR JAMMU OVERALL
— — SD
Mean SJJ C .V Mean C .V M en SJD

Responsiveness in
Providing the Desired 3.23 1.434 44.40% :t.65 .962 26.35% 3.44 1.23
Information to the Dealers

Training of Officiate 3.99 1.108 27.77% 4.31 .759 17.61% 4.15 .96

Grievance Redressal .901 24.15% 3.73 1.13

3.79 1.322 34.88% 3.67
Mechanism

Need for Development

4.64 .534 11.51% 4.84 .493 10.19% 4.74 .52
of Basic Infrastructure

Effectiveness in Pubficity .813 17.71% 4.86 .505 10.39% 4.72 .69

4.59
Regarding VAT.

Need for Holding

Regular Inter-Active 4.75 .590 12.42% 4.89 .451 9.22% 4.82 .53
Meetings

knpliH M taS oR 27.61% 20.13% 127 1.03

4J7 1.16 437 M
(2 (» 2 t*2 2 » 2 » » 2 4 t2 5 )
Source: Scholar's survey of the sample Cities.

223
 The overall mean score 4.27 is a manifestation of dealers’ strong
agreement with the dimension o f implementation. With the mean scores of
4.15 and 4.74 (having a higher level o f consistency) the dealers at the joint
sample level have expressed their strong ageement with the facts that the tax
officials are not sufficiently trained to guide them and so there is a dire need
for the development of basic infrastructure in terms o f arragement for
training o f officials and computerization and automation o f the Tax
Department to enable the officials to discharge their duties to the entire
satisfaction and convenience o f the dealers. Moreover, the mean scores 4.72
and 4.82 indicate that the government has totally failed in launching a
vigorous publicity compaingn to educate the dealers about the benefits of
VAT and this failure has necessitated the holding o f interactive sessions at
regular intervals with the dealers to enable them to gain familiarity with this
new system o f taxation. The task of creating awareness among the dealers is
a contineous process and as such should be taken care of seriously. Further,
the mean scores 3.44 and 3.73, are the indicators o f the dealers’ resentment
and anguish against (a) the inability of Ihe departmental functionaries to
provide the timely information regarding various issues of implimentation of
VAT; and (b) absence of a satisfactory mechanism in the department for the
redressal o f their grievances. These lacunea in implementation have become
a severe cause o f concern and inconvenience to the dealers. This observation
is a negation to the views of Purohit (2006) that availability o f desired
information is a matter of right for the dealers. Requisite publicity o f their
rights and duties with do’s and don’ts is sine-quo-non for dealers.

At the independent sample level with the overall mean score 4.17 and
the successive mean scores ranging between 3.23 and 4.75, the respondents
o f city Srinagar seem to have formed an opinion similar to that of joint

224
sample respondents about the relevant variables of the dimension. However,
their Jammu counter- parts with their overall mean score 4.37 and the
successive mean scores in the range of 3.65 and 4.89 (almost all marginally
higher than the joint and independent sample city Srinagar) appear to have
comparatively a more positive perception about all the items o f the
dimension. The descriptive statistics o f the data presented in the table on the
whole, reveals that the implementation of VAT in the state as per the
perception o f dealers has not been up to tho mark so far and in order to make
it effective and result oriented, a lot of ground work needs to be undertaken
by the authorities concerned. The VAT Department and the officers need to
be fully prepared and well equipped in iheir knowledge about the proper
implementation o f the new tax system. The departmental functionaries have
to go for a major change in their mind set from the regulators to the
facilitators in their dealings with the tax payers (Bushan, 2005).

Dealers’ Perception Regarding Compliance

Dealer’s compliance is the foundation on which the whole structure
o f a tax system is based. Every tax system is designed to secure a better
compliance from the society and so is the true about VAT. In order to assess
the perception of dealers regarding the compliance dimension of VAT, The
following, variables have been put to analysis:

^ Certainty of rates of tax;

Need for increase in thresh-hold limit for registration;
^ Need for increase in thresh-hold limit under the “composition
scheme”;
Need for increase in thresh-hold limit for compulsory audit of
accounts;
> Provision o f input tax credit - An automatic check on mal­
practices
Cost o f operations.

The quantitative analysis of these variables is exhibited in table 6.6.

225
 T A B L E 6 .6
D E A L E R S ’ P E R C E P T IO N R E G A R D IN G C O M P L IA N C E
SRINAGAR JAMMU OVERALL
V n rM ilw f ■"?"*>
Mean S.D C .V M ean SD C .V Mean S.D
Certainty of Rates of Tax 3.35 1.396 41.67% 3.85 1.019 26.46% 3.60 1.25

Need for Increase in Thresh-

4.35 .868 19.95% 3.84 .950 24.90% 4.10 .95
Hold Limit for Registration

Need for Increase in Thresh-

Hold Limit under the 3.84 1.130 29.43% 4.03 .718 17.82% 3.94 .95
Composition Scheme

Need for Increase in Thresh-

Hold Limit for Compulsory 4.44 .923 20.79% 4.09 .698 17.07% 4.27 .84
Audit of Accounts

Provision of Input Tax Credit -

An Automatic Check on Mal­ 3.53 1.319 37.37% 3.23 1.064 32.94% 3.38 1.25
practices

High Cost of Operations 4.43 .649 14.65% 4.79 .422 8.81% 4.61 .58

Com oitancs
339 1.16 2947% 197 0.960 26.70% 3M 1.06
(26+27»28+29*3(H 31)
Source: Scholar's survey o f the sample Cities.

The joint sample mean score o f 3.98 is the reflection o f dealers’

agreement with the construct o f compliance;. Dealers by assigning the mean
score 4.61 (highest among the variables) to the cost o f operations variable
have acknowledged their strong agreement to the fact that VAT has
increased their cost o f operation (cost of compliance) as under this system
for the maintenance o f proper accounting, the services o f trained accountants
are required. This finding is quite in cont -ast to the canon o f economy, if
looked from the dealers’ point of view. Ti e other variables which received
greater weightage from the dealers with the mean scores of 4.10 and 4.27 are
the need for increase in thresh-hold limit for registration and statutory audit
o f accounts wherein the dealers have faiiy agreed that in respect o f annual
turnover, the current thresh-hold limit o f Rs 7.5 Lacs for registration of
small dealers and Rs 40 lacs for the compulsory audit o f accounts by a

226
 Chartered/Cost and Works Accountant need to he increased in order to
secure more and better compliance. Since the network o f VAT in Indian is
spread over to retail stage, hence in order to bring more discipline in the
process o f levy and administration of taxes, the increase in the current thresh
hold limit o f Rs 7.5 Lacs for the registration o f small dealers is inevitable. In
some countries o f the world like Brazil and Canada the coverage o f VAT is
limited to the whole-sale stage and that is why in these countries adoption of
VAT has shown positive results in so f;ir as the levy, administration and
impact on revenue is concerned. More-over, getting accounts audited by a
Chartered/Cost and Works Accountant in case the annual turnover o f a
dealer exceeds Rs 40 lacs, has become a cause of concern for the dealers
which acts as an impediment in the better compliance under VAT. The
dealers at the joint sample level with the mean score of 3.94 have also
expressed their desire that for the dealers opting for the “Composition
Scheme”, the current thresh-hold limit o f Rs 20 lacs needs a suitable
increase and if this desire of dealers is taken care of, the rate o f compliance
is bound to improve. Further, the mean score o f 3.60 suggests that the
dealers are fully convinced with the certainty o f rates which will gradually
accelerate the momentum o f compliance. The claim for input-tax credit is a
halt on undervaluation of goods and secret deals resorted to by some
dishonest dealers in league with some unscraplous consumers. This
observation though endorsed by the dealers, has obtained comparatively a
low mean score o f 3.38. However, there is a greater degree of inconsistency
in the opinion of dealers as the corresponding combined standard deviation

1.25 is marginally higher.

The analysis of data pertaining to the independent sample

respondents o f Srinagar city in view o f the combined and individual mean

227
scores awarded to various constituents o f compliance construct o f VAT,
presents a scenario similar to that o f joint sample. However, with regard to
the variable o f need for increase in thresh-hold limit for statutory audit o f
accounts, the Srinagar based dealers have strongly favoured an increase in
the limit (mean score being 4.44 marginally above the joint sample mean
score). This is mainly so because the audit of accounts increases their cost of
compliance, thus decreasing their profit margin which is otherwise low due
to the lower sales on account of the prevailing circumstances in the valley.

Taking into cognizance the overall and individual variable mean

scores, the Jammu based dealers seem to have almost a similar perception
about the whole dimension of compliance as that o f their Srinagar counter­
parts and the joint sample respondents. The provision o f input-tax credit - an
automatic check on mal-practices, is the only variable in respect of which
their perception is comparatively weak as the mean score 3.23 is lower than
the one recorded at Srinagar. This phenomenon connotes that even after the
implementation o f VAT in the state, the black sheeps in trade still exist.
Here it is the responsibility of authorities to activate the monitoring
machinary with more severeness at Jammu so that no room is left for

indulging in unethical practices in business.

Dealers’ Perception Regarding Neutrality

An important requirement of a new tax system is its neutrality. By

neutrality is meant that the tax system should be neutral in its effects on the
consumers’ choice,on the relations between the registered and unregistered
dealers and on the dealers’ relations with the consumers who constitute the
backbone o f any indirect tax system. With this objective in view, the
dimension of neutrality o f VAT from the dealers’ point of view has been
analysed statistically in the context of its effects upon the choice of

228
consumers, their relation with the dealers after its adoption and finally on the
Post-VAT relations between the registered and unregistered dealers. Table
6.7, presents the descriptive statistics o f the dimension “Neutrality”.
TA B L E 6.7
D EALER S’ PER CEPTIO N R EGARDING N E U TR A LITY
SRINAGAR JAM M U OVERALL
Viriablae/StatBniente
»■---- S.D C .V it ---
C .V ■»----
S.D
M9a> MBafl S .0 Mn r

Effects on Consumers’
3.83 1.234 32.22% 4.19 .872 20.81% 4.01 1.08
Choices for Goods

Effects on Relations with

2.88 1.423 49.41% 2.39 .874 36.57% 2.64 1.2
the Consumers

Effects on Relations with

3.07 1.357 44.20% 3.97 .919 23.15% 3.52 1.24
Unregistered Dealers.

Ncutnflty(32+33+34) US 1.40 4Z9VU 152 1.19 3X80% 3l39 1.30

Source: Scholar's survey o f the sample Cities.

It is clear from the table that with the overall mean score o f 3.39
placed against the combination o f the three variables o f the dimension
“Neutrality”4 the dealers have margnially agreed that the implementation o f
VAT is neutral in its eftects on consumers choice, their relations with the
dealers and the relations between the registered and unregistered dealers.
The highest mean score 4.01 reveals ths dealers’ firm belief about the
neutrality o f VA T in its effects on the choice o f consumers for the goods
they (dealers) deal in. Further, from the lowest mean score o f 2.64 at the
overall sample level, it is certain that the dealers have categorically denied
that implementation o f VAT has cauesd an adverse effect on their relations
with the consumers. The combined mean score 3.26 and the individual
variable mean scores ranging between 2.88 and 3.83 for sample city
Srinagar reveal that there is a close uniformity in the opinion o f Srinagar city
dealers with the opinion o f the dealers o f the joint sample about all the
variables o f neutrality dimension o f VAT. A similar picture has come to
forefront about these variables from the Jammu city dealers as reflected by
their combined mean score 3.52 and the individual variable mean scores

229
4.19, 2.39 and 3.97. It is quite clear from the statistics presented in the table
that the Jammu city dealers have recognised the facts o f neutrality o f VAT
about various trade and trader concerning issues marginally with more stress
as compared to Srinagar city dealers and the dealers of entire sample. From
this discussion, it can be deduced that neutrality is one of the most important
characteristics o f VAT which has most impressed the dealers. The neutrality
dimension o f VAT has been recognized by the dealers as a construct
justifying the very condition/canon of a sound tax system. The observation is
in consonance with the one expressed by L ekhi (2005) while commenting on
the reasons for the popularity of VAT in the countries which have already
switched over to VAT as a step towards the rationalization o f their
respective indirect tax system. VAT does not distort the business related
issues, only market forces rather than tax structure influence business, once
VAT is implemented (Shollapur and Sonagar, 2006).

Dealers’ Perception Regarding Harmonisation

A sound tax system needs to offer a strong Co-ordination between
various taxes being levied at the Central, state and the local levels and
between their imposing authorities. In addition to this, it needs to be in
harmony with the one being levied in the- states located in the immediate
neighbourhood o f the concerned state to avoid the chances of diversion of
trade and to reduce the intensity of unhealty competition among the states
as far as the tex related issues are consemed.

For the purpose of the present study, the perception o f the dealers
about the dimension “Harmonization” has been discussed under the
following 3 variables:

□ Merger o f all state taxes with VAT;

□ Complete Phasing-out of Central Sales Tax; and
□ Uniformity o f structure of VAT with that prevailing in the
neighbouring states.

230
 The collected data pertaining to these variables has been put to
descriptive analysis in table 6.8.

TABLE 6.8
DEALERS’ PERCEPTION REGARDING HARMONIZATION
VM dW SRMAGAR lAumi OVERALL
S tatananto ■----
■ S.D
Moan &D C .V MBM C .V M aan SJD
Merger of all State
4.33 .887 20.48% 4.27 .501 11.73% 4.30 .72
Taxes with VAT

Complete Phasing
4.55 .764 16.79% 4.35 .655 15.06% 4.45 .72
out of CST

Uniformity of VAT
Structure with that of 3.08 1.368 44.41% 3.37 1.102 32.70% 3.23 1.25
Neighbouring States

Harm onization
3JS 1.220 3057% 3J89 .910 22.80% 3.99 1.07
(35*36+37)
Source: Scholar's survey o f the sample Cities.

The descriptive analysis o f the data pertaining to the dimension

“Harmonization” at the joint sample level, reveals that although the dealers
have strongly favoured the merger o f all state taxes and complete phasing
out o f Central Sales Tax (the overall mean scores being 4.30 and 4.45
respectively) to ensure better results under VAT, yet they seem to be
marginally varied in their perception about the uniformity o f VAT structure
o f Jammu and Kashmir with the one prevailing in her neighbouring states as
the assigned mean score 3.23 (having tiie higest corresponding standard
deviation o f 1.25 and the associated Co-efficent o f variations 44.41% and
32.70%) is the low est However, on the whole, the dealers perception and
attitude towards the entire dimension is relatively positive (mean score being
3.99).

The similarity in the overall mean scores (3.98 and 3.99 respectively)
recorded at the independent sample cities Srinagar and Jammu respectively,
depict a picture simlar to that o f the entire sample. Moreover, the results
obtained from the analysis o f variables o f the dimension individually for

231
 both sample cities are consistant with each other revealing that the dealers
on the whole have by and large an identical feeling and attitude towards the
variables.

The above findings are in line with the observations made by Bushan
(2005) that even if currently all state taxes are not a part o f VAT and the
CST is also exisiting parallel to VAT, but the needful ought to be done to
pave the way for better performance o f VAT on administrative and revenue
fronts. As a step towards this direction, the phasing out o f CST has already
begun in the country. Further, having a uniform VAT structure across the
states, will definitely help in quick and easy accounting by traders for VAT
claims.

Overall Summary o f Results for Dimensions Emerging after Data

Purification (Dealers’ Perception)
Table 6.9 sums up the overall results for dimensions o f VAT analysed
form the dealers’ point of view.

TABLE 6.9
OVERALL SUMMARY OF DEALERS’ PERCEPTION
SRINAGAR JAMMU OVERALL
Dfam nsions
Mean S.D C .V (te n S.D C .V Mean SJ>

Desirability 3.91 1.20 30.69% 4 .4 2 .87 19.68% 4 .1 7 1.11

Structure 3.40 1.47 4 3.24% 3.86 1.09 28.24% 3.63 1.31

Price Stability & Economic

2.84 1.26 44.37% 3.33 .99 29.73% 3.09 1.16
W elfare

Administration 3.64 1.19 32.69% 4.00 1.03 25.75% 3.84 1.12

Implementation 4.17 1.16 27.81% 4.37 0.88 20.13% 4.27 1.03

Compliance 3.99 1.16 29.07% 3.97 .96 26.70% 3.98 1.06

Neutrality 3.26 1.40 4 2.94% 3 .52 1.19 33.80% 3.39 1.30

Harmonization 3.98 1.22 30.57% 3.99 0.91 22.80% 3.99 1.07

O verall Perception £65 126 3152% ZJS3 1.05 26.71% 3.79 1.16
Source: Scholar's survey of the sample Cities.

232
 The overall perception o f dealers for all the dimensions of VAT has
been rated with the mean score 3.79 suggesting a fair amount o f agreement
o f the dealers with the relevant dimensions. The highest mean scores 4.17
and 4.27 imply that the dealers have attached more significance to the
desirability and the implementation dimensions from amongst all
dimensions. The reason obviously seems to be the suffocation o f the
previous tax regime due to its short falls which had rendered it painful for
the dealers as well as for the administrators. Another important reason
appears to be the lack o f necessary infrastructure in terms o f trained man­
power and advanced technology in the department to make the dealers
aware, provide them timely information and redress their grievances which
are a pre-requisite for the effective implementation o f VAT. This finding
matches with the finding o f Purohit (2006) suggesting that for the effective
implementation o f VAT, the organizational re-engineering to have a
computer environment, functional allocation, human resource development
programmes for using the computers, incentives for the use and
development o f the requisite software, are as important as the blood to a
human body. The other significant dimensions in the eyes of dealers in view
o f the mean scores 3.99 and 3.98 are the harmonization and compliance
dimensions respectively. The main reason for attaching relatively a higher
weightage to these dimensions can be the dealers desire to replace all the
state level taxes by VAT and to provide them relaxations by way of
elimination o f Central Sales Tax and increase in threshold limits for
registration and audit o f accounts in view o f higher cost o f operations to
ensure better compliance. Non-abolishment o f Central Sales Tax, parallel
presence o f other local taxes, high business costs in using correct and
accurate accounting, are the main problems in the effective implementation
o f VAT (Bushan, 2005). The need o f the hour is to address all these
problems as early as possible.

233
 The analysis of the table further reveals that the dealers as a joint
group (Srinagar and Jammu cities jointly) with the mean scores 3.84, 3.63
and 3.39 seem to be convinced about the simplicity o f theoretical
framework, fairness o f tax rates, computational mechanism, dubious nature
o f assessment, convenience in inter-state trade, complex nature o f
accounting, harassment by tax officials, need for honesty o f administrators
to accelerate voluntary compliance, simplicity in registration and filing up o f
return forms, improper arrangements for the acceptance o f returns by the
department and the neutrality o f VAT in its effects on consumers’ choice,
their relations with the dealers and the relations between the registered and
un-registered dealers after the adoption of VAT in the state. The lowest
mean score 3.09 assigned to the dimension o f price stability and economic
welfare dimension by the dealers is a manifestation of their belief that VAT
has failed in keeping the unwarranted rise in prices under control and as
such it has not been able to offer any opportunity o f growth in the income o f
the dealers. This finding is in accord with the one made by Jerinabi and
Santhi (2006) in his survey o f the traders’ views on VAT in Coimbatore city
in which he concludes that about 72% of dealers are pessimistic about any
increase in their income after the implementation of VAT.

The perusal o f the data displayed by the table further reveals that the
respondents o f independent sample city Srinagar in view o f the overall mean
score 3.65 and the mean scores for individual dimensions ranging between
2.84 and 4.17, have formed an opinion about the overall position o f VAT
which bears its similarity to that o f the joint sample respondents. However,
the overall mean score 3.93 for all the dime nsions and the mean scores in the
range o f 3.33 and 4.42 for the individual dimensions recorded at Jammu city
(some being marginally higher than those recorded at the joint sample level)
is a depiction o f the fact that the attitude and the perception o f Jammu based
trading community towards various dimensions of VAT is marginally better
as compared to Srinagar based trading fraternity. The reason seems to be a

234
SSSSSEE

better understanding about VAT coupled with a congenial and hassle free
business and economic environment enjoyed by the Jammu traders than their
Srinagar counter-parts.

RELATIONAL STATISTICS
Rank Correlation
With a view to identity the constructs/dimensions of VAT in order of
importance, the data was put to Spearman's rank correlation analysis cm the
basis o f the mean scores obtained for each dimension. The ranks obtained by
each dimension from the dealers of two sample cities are displayed in table 6. 10.
TABLE 6.10
DIM ENSION-W ISE RANKS A L L O TTE D B Y TH E D EALER S
SRINAGAR JAMMU
Dimension*
Mean R1 Mean R2
Desirability 3.91 4 4 .4 2 1

Structure 3 .4 0 6 3 .8 6 6

Price Stability & Economic

2 .8 4 8 3 .3 3 8
Welfare
Administration 3 .6 4 5 4 .0 0 3

Implementation 4 .1 7 1 4 .3 7 2

Compliance 3 .9 9 2 3 .9 7 5

Neutrality 3 .2 6 7 3 .5 2 7

Harmonization 3 .9 8 3 3 .9 9 4
Source: Scholar's survey o f the sample Cities.

From the table it is clear that the order o f importance (ranks) given by
the respondents o f the two cities under study to the dimensions structure,
price stability and economic welfare and reutrality are the same in both the
cities i.e. the ranks allotted to these dimensions correspond to each other.
With the exception o f implementation and harmonization dimensions
(ranked at 1, 2 and 3, 4 respectively) then; is a significant difference in the
ranks allotted by the dealers of the two sample cities to the dimensions
desirability, compliance and administration. The co-efficient o f rank
2

correlation was found out using the formu la, r = 1 — ------. The calculated
n - n

235
coefficient o f rank correlation (0.754) indicates a high positive correlation
among the dimensions. The analysis of the table further reveals that the
dealers o f Srinagar have attached more importance to implementation,
compliance, harmonisation and desirability dimensions while as their
Jammu city counterparts have recognised the desirability, implementation,
administration and the harmonisation as the important dimensions. It is a
trueism that if a tax system is properly implemented, it will not only ease out
the task o f its effective administration and ensure a better compliance but
will also justify its desirability. For this purpose, a strong co-ordniation and
harmonisation in various taxes and their imposing agencies is a per-
condition. This finding bears its consonance with the observations made by
Purohit (2006), Bashir, et al (2005), Bushan (2005) and Padmavathi (2006)
that proper implementation is a must as other-wise the problem of
harmonisation crops up. Further, the identical ranking o f the dimensions
structure, neutrality and price stability and economic welfare by the dealers
o f two cities implies that the dealers have a broader concensus about the fact
that the existing structure o f VAT is neutral in its effects on reduction in
prices, growth in the income o f the dealers and their relations with
consumers and unregistered dealers. However, in view of the lower ranks
assigned to these dimensions, it is crystal clear that these dimensions and
their associated constituents have not impressed the dealers in a significant
way.

Karl Pearson’s Correlation

In order to measure the nature and degree of association among the
various constructs/dimensions of VAT from the dealers’ point o f view, the
data was subjected to Karl Pearson’s method o f correlation analysis. Tables
6.11 and 6.12 demonstrate the nature of correlation among the various
constructs o f VAT from the point o f view o f the dealers of two cities,
Srinagar and Jammu separately.

236
 4k 4* m * m t » m 0 0
3
■o |
1
Structure

Neutrality

• 1 1
-m
Compliance

I f
Admlnlttratlon

Harmonization

3
f t
* * * ;
* * *
CO o C5 co
o fO O CO
05 CO cn ro oo o> CO 05
CD co o 8 IO t
000'

cn ro 05 CO
Desirability

# Significance (2-taiied)

I * * *
* * * *
- co o CO c> CO
o o IO co
o CD 2 8 CO o 05 o
CO O 05 o IO
CO •
000'

,1 0 5

CO CO CD O CO OD o -
Structure

Source: Scholar's survey of the sample Cities.

m _
* * S i
* * * *
* * 1* * * * g S
» 1
CO ro o CO b> CO 3 «
O <3 o 05 CO 05
CO ro o o o> cn cT S
.0 0 0

o O
.0 0 0

to oo o IO o> • — CO o
o o> o>
w
3 ®*
* » *
* * *
»
‘o CO bo o o CO 'o 05 o CO o
■Nl o o cn o CO 05
.1 4 9

co
-.0 1 1

o o
.1 4 5

cn -si o> o • o 05 o oo CO
<z> -
TABLE 6.11

Admlnlttratlon

* »
» * » *
» J
*
o CO <3 o C5 05 'o io c>
o 05 05 O o o 05 o IO CO

.9 5 5
o -->J cn Cn • o *-4 o IO o CO -vl
Implementation

* *
* * »
bo co 'o CO o 'o c> ro ro ‘o CO
<j> ro o cn o A o oo o cn
.0 0 0

.0 1 4
CO -vl • - cn cn o> cn oo 4^ o 05
Compliance

*•
» a s
1
'•>J O CO c> bo o io o
C 71 ro ro o o > CO o IO o 05 o > ro

-.0 1 1
•
CO o> — -^ 4 cn 4^ 05 fO CO IO ■fw
*
*
* *
1 * *
o o CO co o co o io
cn ro 05 o CO o CO o 05

.8 6 8
.0 0 0
a

000'
• CO o> --I a t 8 05 cn CO cn
Harmonization

* Correlation is significant at the 0.05 level (2-tailed)

**Correlatlon is significant at the 0.01 level (2-talled)
CORRELATIONA MATRIX OF VAT DIMENSIONS BASED ON DATA COLLECTED FROM SRINAGAR RESPONDENTS
 The table 6.11 shows that there is a significant correlation (r = 0.656)

at 1% level between price stability and economic welfare and

Administration dimensions o f VAT in city Srinagar. Correlation between

these two dimensions in city Jammu as shown by table 6.12 is also

significant but the degree o f association is marginally low i.e. (r = 0.334).

This positive association indicates that to a large extent, stability in prices

and the increase in the income o f the dealers due to the elimination o f

cascading effect o f taxes is closely related to an effective and efficient

administration o f VAT. If administration is weak, it will add fuel to the

inflationary fire and hence the elimination o f cascading effect o f taxes

guaranteed under VAT, will prove ineffective for the dealers. In city

Srinagar, correlation (r = 0.398 at 1 % level) is significant between the

structure and Administration dimensions also. Almost a similar situation

regarding these two dimensions exists in city Jammu where r = 0.442. This

implies that better administration o f VAT is closely associated with its

structural features like rates, computational and assessment mechanism,

convenience and nature o f accounting. A significant correlation is also seen

between Desirability and structure dimensions with r = 0.392 for Srinagar

and r = 0.473 for Jammu which signifies that VAT with the existing

structure has justified its desirability as a best and a rational substitute o f the

erstwhile sales tax systme in the state from the dealers point of view.

238
 TABLE 6.12
CORRELATIONA MATRIX OF VAT DIMENSIONS BASED ON DATA COLLECTED FROM JAMMU R E SP O N D E N T S
 Another important combination o f dimensions in respect o f which
correlation is significant (i.e. r =0.363 and 0.396 at 1% level) in the two
sample cities is that o f structure and price Stability and economic welfare.
The fact is that VAT with the current structure, has not been instrumental so
far in controlling the rise in prices and in pushing up the income o f the
dealers in the state. But as pointed out earlier the problem should not be
taken seriously for the architects o f VAT have hinted for the rise in prices in
the initial years resulting in no immediate benefit to the stakeholders. This
finding bears its relevance to the observation o f Bushan (2005). Correlation
is also significant in case o f desirability and compliance constructs in both
the cities. In Srinagar city correlation between these two dimensions is
0.356(at 1% level) and in Jammu it is 0.181 (at 5% level). The dealers in
both the cities believe that if all the requisite steps to generate voluntary
compliance are taken by those at the helm o f affairs, they (dealers) are sure
to get rid o f the inconveniences to which they were subjected to under the
1

previous tax regime. The analysis of the tables further reveals that
correlation is significant (t^O.535 and 0.284 at 1%) between the structure
and compliance dimensions in the two sample cities which reflects that the
more attractive the structure o f VAT, the higher would be the rate o f
compliance. If a tax system is sound in structure, the rate o f compliance is
bound to rise (Chitora, 2005). Price stability and harmonization constructs
with r= 0.336(S ig.at 1% level) in case of Srinagar and 0.188 sig.at 5%
level) in case o f Jammu suggest that in order to ensure stability in prices and
an increase in the income o f dealers, harmonization between various local
and Central taxes with VAT is highly desirable. This finding matches with
the observation o f Kumar, et al. (2004). Harmony in taxes makes their
administration easy and painless. This fact stands confirmed by the
correlation 0.305 and 0.364 significant at 1% level between administration
and harmonization dimensions in the two cities.

240
 The relational analysis o f the data presented by the tables 6.11 and
6. 12, further shows that there is a significant negative correlation between
implementation and harmonization (r= -0.567), between implementation and
price stability and economic welfare (r=-0.362) and between implementation
and Administration (r =-0.347) at 1% level in city Srinagar corresponding to
significant positive correlation (r =0.334), insignificant negative correlation
(r=-0.080) and insignificant positive correlation (r=0.104) for these
combinations in city Jammu. Implementation is a common factor which has
a direct bearing on price stability and economic welfare, administration and
harmonization. Proper implementation puts a check on rise in prices, paves
the way for administrative ease and ensures harmonization in various taxes
and their imposing agencies (Chelliah Committee, 1991). The correlation
analysis o f these dimensions reveals that ia Srinagar the implementation of
VAT is comparatively weak to arrest the rise in prices, remove the
administrative wrangles and achieve the harmony in taxes particularly under
the continued presence o f Central Sales Tax (CST). Excepting the
harmonization dimension, almost same is the position in Jammu city.

Another important combination o f constructs in respect o f which the

correlation in the two sample cities mismatches is Neutrality and price
stability and econmic welfare with r = -0.222 at 1% and 0.184 at 5%
respectively. This state o f affairs reflects that the dealers in Srinagar opine
that neutrality o f VAT in its effects on consumers’ choice for the goods,
dealers relations with the consumers and ur,registered dealers is independent
o f stability in prices and increase in dealers’ income. However, their Jammu
based counter-parts feel that to some extent the price stability and economic
welfare elements o f VAT affect its neutrality. The positive correlation for
almost all the dimensions of VAT in Jammu city is a manifestation o f
dealers better perception about the system as compared to the Srinagar city
where some dimensionfhave shown a negative correlation.

241
INFERENTIAL / INDUCTIVE STATISTICS
Hypotheses Testing (Parametric and non- Parametric)
In order to examine the difference in the perception o f dealers o f the
two sample cities in relation to various constructs of VAT saperately and the
VAT as a whole,the data was put to hypotheses testing. In this context, two
tests namely “Z test” ( a parametric test based on normalility o f population
distribution and homogeneity o f variances) and Mann-Whitney “U” test (a
non- parametric test based on unrestrictive assumptions about the
distribution o f population and variances) were worked out for inferential
purposes, with the following hypothetical framework:

Null hypotheses i) The Perception o f the dealers o f the

Alternative Hypotheses
ii)
two cities about each dimension/
construct of VAT is the same.
ii) The perception o f the dealers o f the
two cities about the overall sysyem
o f VAT is the same.
i) The perception o f the dealers o f the
two cities about each dimension/
construct o f VAT is not the same.
The perception o f the dealers o f the
two cities about the overall system
o f VAT is not the same.

Statistically / Mathematically the Null and the Alternative hypotheses

can be expressed as under:

Null Hypotheses
H0di =M i
H0v.fj.sv = Jj.jv

H.di :nsd,
Alternative Hypotheses
H .v ‘ Msv * H jv

Where (is and (Jj represent the mean scores o f perception about
various dimensions o f VAT assigned by the dealers o f Srinagar (p.s) and

242
Jammu (^j) respectively. Subscript df where i = 1, 2, 3, d 8 stand for the
order o f individual dimensions of the instrument employed for the purpose
o f study. V stands for the perception o f the dealers about the overall system
o f VAT. The data pertaining to the dealers’ perception was first put to test
under “Z” statistic with the assumption of equal variances. At 1% level o f
significance (2- tailed), the P. values for the dimensions Desirability, structre,
price stability and economic welfare and Administration show that the
difference is statistically significant which implies that Null hypotheses
(H 0d l, Hod2, Hod3 and H 0d4 ) i.e. the mean scores for these dimensions
between the two cities are rejected in favour o f the corresponding alternative
hypotheses H id l, Hid2, H[d3, and Hjd4.

Further, for other dimensions namely implementation, compliance,

neutrality and harmonization and for the overall system, the P. values at 1 %
level o f significance (2-tailed) indicate that the difference is statistically
insignificant, which announciates that Null hypotheses H0d5, H0d6 Hod7,
H0d8 (individual dimensions) and HoV (overall) failed to get rejected and
hence are accepted.

Table 6.13 presents the data about dealers’ perception for parametric
inferential statistics.
TA B L E 6.13
PARAM ETRIC S TA TIS TIC S - H YPO TH ESIS TE S TIN G (“Z ” T E S T )
SRINAGAR JA#IMU
Dimensions Z P
Mean S.D. Mean S.D.
Desirability 3.91 1.20 4.42 .87 •4.21 .000
Structure 3.40 1.47 3.86 1.09 -3.07 .003
Price Stability and Economic welfare 2.84 1.26 3.33 .99 -3.75 .000
Administration 3.64 1.19 4.00 1.03 -2.81 .004
Implementation 4.17 1.16 4.37 .88 -1.68 .093
Compliance 3.99 1.16 3.97 .96 0.16 .870
Neutrality 3.26 1.40 3.52 1.19 -1.73 .078
Harmonization 3.98 1.22 3.99 .91 -0.08 .930
Overall 3.65 1.26 3.79 1.05 -1.05 .290
Source: Scholar's survey o f the sample Cities.

243
 With a view to strengthen the results given by the parametric
statistics, the Mann-Whitney “U” statistic (a non-parametric test) was
applied to the data and the subsequent results have been displayed in table
6.14.
TABLE 6.14
NON-PARAMETRIC STATISTICS — HYPOTHESIS TESTING
(MANN-WHITNEY “U’TES T)

SRINAGAR JAMMU
Mann-Whitney Sig.(2.
Dimensions Z
Sum of Sum of U tailed)
ranks ranks

Desirability 18175 26975 6850 5.940 .000

Structure 17032 28111 5707 7.528 .000

Price Stability and 4.157

19509 25641 8184 .000
Economic welfare

Administration 19872 25278 8547 0.362 .000

Implementation 22093.50 23056.50 10769 0.640 .234

Compliance 22851 22298 10973.50 0.371 .711

Neutrality 21419 23736 10089 1.540 .434

Harmonization 22616 22534 11209 0.056 .955

Overall 21247 23903 12578 1.769 .078

Source: Scholar's survey o f the sample Cities.

As already mentioned, the p. value of dealers’ perception about the

dimension o f desirability in the two sample cities under study is statistically
significant. This significance could be due to (i) difference in the opinion o f
dealers about the basic motive o f adoption o f VAT in the state, (ii) Non­
availability o f lead time to understand and to make the necessary
preparations in order to gain familiarity with the new tax system. Moreover,
the state o f Jammu and Kashmir has a large number o f small Unorganized
and uneducated vendors. They are not matured enogh to judge properly the
desirability or otherwise of a new tax system. The same observations about

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the trading community of Jammu and Kashmir have been made by Yasmeen
(2004) and Godbole Committee (1998). In fact traders are not averse to
VAT, but the unfamiliarity to VAT seems to bother them. It would have
been more prudent on the part o f Government to have allowed a period of
transit for the introduction o f VAT, during which the stakeholders could
have made the necessary preparations to welcome this new system o f tax. A
similar kind o f observation stands made by Jerinabi and Santhi (2006) as
regards the allowing o f period o f transit for making the necessary
preparations in this behalf.

As regards the dimension “structure” the significance o f P.value can

be attributed to the dealers consideration lor individual benefits from VAT.
Generally the tax payers pay taxes with the expectation o f their individual
benefits and when they do not find any benefit in a tax system even if it is a
sound one in terms o f its structure, it becomes a subject o f criticism. This
finding is in tandem with the observation o f Lekhi (2005). Moreover, for
Jammu and Kashmir, VAT is more cumbersome, because it demands
extensive records, additional paper work and systematic maintenance of
accounts preferably a computerized one. The computerisation o f accounts
has yet to make its appearance in the state. The same observation has been
made by Yasmeen (2004). The small traders in the state used to rely on
primitive system o f accounting under the sales tax system. Under VAT they
are required to keep a proper, complete and a systematic record of
transactions. On the other hand, they have neither the time nor the training
for this. This has affected their business adversely as they have to incur
additional operational / compliance costs. Bushan (2005) has a similar kind
o f observation as regards the Structure o f VAT. Another important reason
for the significance o f difference in the perception of dealers about the
structure construct o f VAT, is that since Jammu and Kashmir is a consuming
state, most o f the consumer as well as the capital goods, are being procured
from other states on inter- state basis. On inter- state purchases, no input-tax

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credit or VAT refund is available. This observation is in consonance with
the one made by Joo (2004).

The significance o f P.Value for the dimension price stability and

economic welfare and its constituents, seems to be due to the fact that even
if the dealers have felt some relief through the elimination o f cascading
effect o f taxes on local purchases, but this cascading effect is very much
prevalent in the inter-state purchases and as already mentioned, most o f the
trade in the state takes place on inter-state basis. Therefore, the dealers on
the whole, do not feel any sign o f economic welfare under VAT. This
finding matches with the observation o f Shollapur and Sunagar (2006).
Moreover, the Srinagar based dealers are more pessimistic about the price
Stability and economic welfare dimension because of unfavourable business
and economic environment on account o f the existance o f nearly two
decades old political instability and turmoil especially in the Kashmir
division.

As regards the dimension “administration”, the significance of P.

Value representing the meaningful difference in the perception o f two
sample means, appears to be due to a common feeling o f dealers that besides
causing a huge increase in compliance and operational costs, VAT has
subjected them to severe administratrative inconveniences. This is so
because the tax officials’ harassment and intereference continue to exist
even under VAT. This finding contradicts with the opinion expressed by
Bushan (2005) about the administration o f VAT. The traders especially the
Srinagar based traders, feel that the attitude o f administratrators and the
departmental functionaries towards them is marginally hostile as they are
being discriminated against. I’hey also feel that their Jammu based trade
mates get a friendly treatment from the administratration.

The primary reason for the significance of P. values for the above
mentioned dimensions of VAT is that VAT being a new and different tax

246
from sales tax, invites a change both in c ompliance and behavior o f dealers
and no body is ready to accept the change. Change is always being disliked
and hence resisted on one pretext or the other. This finding is in total
proximity with the observation o f Bushan (2005).

Further, the insignificance o f P. values for the dimensions

implementation, compliance, neutrality, harmonization and the P. value for
the overall system o f VAT indicate that by and large the dealers o f the two
cities as the potential Stake-holders o f VAT, have a similar and uniform
perception about the effects of VAT, in the state. Since the implementation
o f VAT is yet in its transition phase, the perceptual differences can crop up.
But once the stake-holders especially ti e dealers gain understanding and
experience about this system, doubts and apprehensions will be removed. It
can be said firmly that transmission o f knowledge on value added tax to
dealers in the state would not only bring about an ease in the computation
procedure and the filing o f returns but would also ensure its better
administration. This will certainly result in better compliance by traders and
will surely remove the doubts and apprehensions from their minds.

The dealers o f city Srinagar have shown a marginally poor perception

in relation to almost all the dimensions when compared to Jammu city
dealers. The possible reasons are:

a) The dealers in Srinagar are disorganised;

b) A majority of dealers in Srinagar are uneducated;

c) Both the Government and the Trade Associations have failed to

launch an intensified publicity and awareness programme to the
extent expected by the dealers to acquaint them with the
mechanics o f VAT before and after its implementation;

d) Even if the traders associations o f Kashmir division have

attempted to organise some awareness programmes to disseminate
information among the dealers, the dealers have responded

247
 poorly as they believe that the traders associations are the
representatives of the government because o f their inclination to
and affiliation with different political parties and hence they
cannot be the true friends and the well wishers of the traders.

e) The environment for carrying out the business and economic

activities is not conducive in the valley due to 18 years old turmoil;

f) The valley based dealers have become habitual o f enjoying

amenesty schemes under the garb o f political uncertainity. The
grant o f amnesty to benefit the valley dealers, goes as an
automatic bonus to their counter-parts at Jammu;

g) The dealers o f Kashmir division have more greed for profits and
as such they are not willing to incur additional costs on
maintaining a proper record o f transactions which is a necessity
under VAT;

h) They are not fully conscious about their responsibilities towards

the society and the state as a whole;

i) The tax officials’ / officers’attitude towards valley based dealers

in a bid to accelerate the pace of compliance, is marginally
harsh;

j) The valley based dealers are not fairly exposed to global

changes and hence they resist every change;

k) The dealers are yet to change their mind set for the success of
this new tax regime.
On the whole, the perception o f dealers vis-a-vis VAT shows a mixed
reaction towards the important canons/ principles o f a sound tax system.

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