Disadvantages of Vat :
Though Vat system has many advantages, the system is not free of pitfalls and difficulties.
(a) Heavy compliance cost – detailed accounting and paper work is required as is not as simple as a single point sales tax.
(b) Hindrance in inter-state movement of goods – Each State wants to keep record of goods coming in and going out of State, for which check posts are required. This delays movement and increases corruption. Really, all the goods will be tax paid during inter-statement of goods as IGST will have to be paid on all such goods. There is no need for physical barriers for movement of goods from one State to other. The inter-state check posts can be abolished, if there is strong political will to do so.
(c) State where goods are produced do not get any tax revenue as all revenue goes to State where goods are consumed as Vat works on destination principle. For example, major quantity of wheat produced in Punjab goes outside the State. Similar situation exists in case of minerals in Jharkhand,
software in Karnataka or manufactured products in industrially advanced States. Of course the States get indirect benefits like growth of employment, improved economy etc. but no direct benefit of Vat/sales tax.
(d) Tax evasion through bogus invoices. Since input tax credit is on the basis of invoice, the invoice is like currency note to the seller. Printing invoice is much easier than printing currency notes. Under GST, the input tax credit will be on basis of electronic returns. Hence, chances of evasion on account of bogus invoices is much less.