VAT was adopted because the Sales Tax system is complex and induces non-compliance. It has been found to be a hindrance in the economic growth of Industry, State and the Country. This causes a huge loss of revenue to the government.
VAT also helps in eliminating the dreaded cascading effect of Tax.
For instance, in the existing structure, inputs are taxed before a commodity is produced and the output is taxed after it is produced. This causes an unfair double taxation with cascading effects. However, in VAT, as a set-off is given for input tax as well as tax paid on previous purchases, overall tax burden will be rationalized and prices in general will fall. VAT thus makes the tax system simple and transparent.