Tax on the value addition of different
levels of manufacturing and distribution of goods and services.
The main objection of vat is to integrate all taxes and also to do
away with multiplicity of taxes. Globally tax also includes taxation
of service but in Indian perspective services are excluded. The
developmental needs of the country is met by direct and indirect tax
revenue income and corporate taxes are come under direct
taxes,indirect taxes are part of manufacturer and distribution of
goods,which are sales,excise and customs.
The much awaited tax restructuring is a
result of requirements to simplify the tax collection procedure and
to reduce tax caution by the public. On the recommendation of tax
reforms committee lead by Dr. Rajah Chellaiya . The Government of
India introduced VAT as sales tax in 1995 {CENVAT} MODVAT for excise
on and MAT for corporate tax in 1998 21 of 28 state completed VAT in
April 2004.
VAT AS A CONCEPT
VAT an abbreviate of Value Added
Tax, which is explained as follows : The value that a procedure adds
to his raw materials or purchases before selling the new improved
product or service. A broad based multi point sales tax with a set
of credit for tax paid on purchase services. Each transaction where
value addition is made in due course of business will make revenue
addition to the Government. The sale requirement of VAT is a highly
effective tax management system. Which is expected to be automated.
Significant advantages of VAT: It
provides a set off for input tax as well as tax paid on previous
Purchase .Mostly the other taxes like surcharge,additional
surcharge,turnover are abolished. It removes tax on tax so it is end
consumer / payer friendly as the price of commodities is expected to
fall .
MAIN OBJECTIVES OF VAT.
To do away with multiplicity of
taxes and integrate all taxes.
To lower the cost of production
and investment in the economy by allowing entrepreneur to claim
credits for tax charged on their business inputs including raw
materials parts of machinery and equipments.
To increase the competitiveness
of the Indian industry globally by removing cascading and pyramidal
effect of earlier sales tax legume.
To promote self regulatory
mechanism for taxation system.
A better administrated system that
will do away with tax evasion ..
to avoid under valuing of
products and services their by increasing tax collected to the
Government.
To remove barriers in interstate
trade and commerce .
To create unified national market
with simplicity and transparency.
To encourage tax payers by input
credit method for better tax compliance.
To prevent exemptions and imposed
tax at each stage of value addition.
To generate a trail of invoices to
support audit and enforcement.
CURRENT VAT RATES.
These are the rates suggested by
Indian government, which may be changed by state governments
according to their requirements.
1. 4% VAT for medicines ,agricultural
and industrial inputs,capital goods and declared goods.total of 270
items are listed under this rate.
2. 12.5%VAT on all remaining items
.their is a total of 232 items under this category.
3. 46 items are exempted from VAT of
which states can choose maximum of 10 items for exemption from VAT.
FEATURES OF VAT.
VAT workers on the principle[le
of input tax ,output tax and input tax credit.
Input tax is the tax paid by any
registered dealer to any other registered dealer goods purchased.
Under VAT , tax is levied on value
added to the products ,which is difference between purchased and
sales price.
VAT has to be paid by a registered
dealer for value addition of goods sold by him.
Tax charged by the registered
dealer is the output tax.
The set of which dealer gets the
tax paid on purchaser within the state is the input tax credit.
The VAT Liability is calculi;ated
by deducting input tax credit from tax collected by the dealer.
Only purchases made by a
registered dealer from another registered dealer within the state is
eligible for input tax credit.
VAT is the method of taxing in
installment or stages .
VAT is a simple, transparent,and
trader friendly taxation system.
VAT Accounting a Case Study
A- Manufacturer of goods
B- Primary Wholesale dealer
C-Secondary dealer
D-End consumer
|
Transactions of A
|
|
Sale of goods to B
|
1000
|
|
|
|
VAT@12.5%
|
125
|
+
|
(1)
|
|
Total
|
1125
|
|
|
|
|
|
|
|
|
Transactions of B
|
|
Input
|
1000
|
|
|
|
Additional input
|
500
|
+
|
|
|
Sale of goods to C
|
1500
|
|
|
|
VAT 12.5% `
|
187.5
|
|
|
|
- Input credits
|
125
|
-
|
|
|
output tax
|
62.5
|
|
(2)
|
|
Transactions of C
|
|
Input
|
1500
|
|
|
|
Profit
|
500
|
+
|
|
|
Sale of goods to C
|
2000
|
|
|
|
VAT 12.5%
|
250
|
|
|
|
- Input credits
|
187.5
|
-
|
|
|
output tax
|
62.5
|
|
(3)
|
|
Transactions of D
|
|
Gross value of purchase
|
2000
|
|
|
|
VAT
|
250
|
+
|
(4)
|
|
Total Amount Paid
|
2250
|
|
|
Total Tax payable to the government
125 +
62.5+
62.5+
225 <= Total amount to
government
| 
