Trade associations feel their protests have been instrumental in forcing state governments to rethink the switch to the value-added taxation system from the existing sales tax regime.

"The value-added tax is good for manufacturers, but bad for traders. We are protesting against the extensive procedural formalities that will have to be followed by traders under the new regime, resulting in increased transaction costs," Sanjay Sethi of the Confederation of All-India Traders said.

"It is unfair to expect that small and medium traders will be able to understand the new system and maintain calculations of tax incidence at every point in the value-addition chain," Sethi said.

An illiterate trader could end up behind bars even if he did not intend to evade taxes, he added. Sethi said trade had flourished under the single-point sales tax regime and tax collection had also gone up.

He said under the new system, small and rural traders would also be brought into the tax net.

"The government has proposed to waive the value-added tax on a turnover up to Rs 500,000. Not only is this limit too low, but the proposed minimum voluntary tax deposit of Rs 900 per month is also unfair," he said.

The proposed tax rate of 12.5 per cent was too high and would lead to an increase in the cases of tax evasion, Sethi said.

He also said traders already contributed Rs 82,000 crore (Rs 820 billion) to the state government's kitty through tax payments and therefore, there was no need to change the existing set-up.