With service sector accounting for nearly 50 per cent of its GDP, India would do well to adopt, as early as possible, value added tax system, which is not only a better way to tax the services sector but it also increases tax compliance, a top World Bank official said in Bangalore on Thursday.

"Taxation of services is an important issue. VAT is a method to tax services and it can lead to greater tax buoyancy besides ensuring better tax compliance," World Bank vice president and chief economist Nicholas Stern told reporters.

Implementation of the VAT regime, strongly favoured by the Kelkar committee on tax reforms, has been hanging fire since April this year.

With Finance Minister Jaswant Singh ruling out its implementation without all states making full preparation for its introduction, and the trading community vehemently opposing it, VAT is unlikely to be implemented before the Assembly elections in some states later this year.

Stern stressed that any tax reform has to be within the framework of constitution and VAT is no exception.

He said other countries too faced difficulties in implementing VAT, but it was found to improve tax compliance, thus improving revenue mobilisation.