VALUE ADDED TAX

Submitted to Dr. Praerna sharma

Submitted by Nirbhay singh

DEFINITION The value added tax (VAT) as its name implies is a tax in the value added to a commodity or service A value added tax(VAT) is a tax not on the total value of the commodity being sold. but on the value added to it by last trader .

.CHARACTERISTICS OF VAT Its special characteristics being that it falls on the value added at each stage from the stage of production to retail stage. It is a multiple stage tax collection.

VAT TERMINOLOGY Output VAT: Amount received by a seller as a percentage of the gross sale price of goods or services Input VAT: Amount paid by a buyer as a percentage of the gross purchase price for goods or services used in production .

Thus. ¶value added· is the difference between selling price and the purchase price. MEANING OF ¶VALUE ADDED· ² the ¶value· of inputs is Rs 110. while ¶value· of output is Rs 150. . the manufacturer has made ¶value addition· of Rs 40 to the product. Simply put.

POINTS IN FAVOR OF VALUE ADDED TAX Neutral form Simple form of taxation Less scope for tax evasion Easy method of investigation Promotion of exports Based on gross auditing Less burdensome It encourages investment Burden of tax is shared by all factors .

POINTS AGAINST VALUE ADDED TAX Not easy to adopt Shortage of efficient management Inflationary in nature More expensive Not neutral tax Not conductive to efficiency Not economical Possibility of tax evasion Lack of public co-operation Difficult to adopt in under-developed countries .

Jha Committee suggested there ought to be lowering excise duty on one hand and restrictions should be levied on the powers of state governments to impose sales tax . In this regard L.octroi.K. sales tax . Many renowned economists as well as expert committees have look into VAT It has some attractions as the tax structure of commodity tax is complicated Study group appointed by FICCI has strongly favoured to adopt VAT in place of excise duties.VALUE ADDED TAX IN INDIA India has been making its best efforts since long to modify the prevailing tax structure.

PROBLEMS OF VAT IN INDIA Constitutional problem Administrative problems Revenue considerations Experience of developing countries .

.SOME OF THE REASONS FOR OPPOSITION OF VAT Presence of a large number of tax deferral and holiday schemes. which resulted in a narrow base. Owing to this. the tax rates have to be reasonably low. which gave rise to open revolt against the system. there was considerable consternation among the trade. and even administrators. which is multi-point. and lower tax rates presupposes that the tax base is wide Low level of awareness among traders. It may again be noted that under VAT. giving rise to fears and apprehensions.

. Drop in revenue for the State Government. Multiplicity of rates of tax under the VAT regime. though there are no studies attributing such reduction to the system of taxation. Increased burden on retailers of Bookkeeping and compliance. Partial implementation of the ideal VAT with the existing system coexisting even under this regime.

These provisions used in central excise to implement the concept of VAT at the manufacturing stage by giving the credit of the duty paid on inputs The CENVAT scheme is principally based on the system of granting credit on duty paid on inputs. . MODVAT was in practice. and that was modified into CENVAT. Under CENVAT.CENTRAL VALUE ADDED TAX(CENVAT) Till march 2000. a manufacturer has to pay duty as per nominal procedure on the basis of ¶assessable value·(which is mainly based on selling price) of a final product.

Credit will be available for duty paid on Raw materials Material used in relation to manufacture Packaging material Paints CENVAT credit is available only on inputs used in or in relation to the manufactur .

. When total Output VAT exceeds total Input VAT the difference is paid to the taxing jurisdiction.VAT CALCULATION VAT taxpayers RELATE total OUTPUT VAT (amounts received from buyers in sales) to their total INPUT VAT (amounts paid to sellers in purchases). When total Input VAT exceeds total Output VAT the taxpayer is entitled to a refund.

For instance. the tax payable by the dealer will be only Rs 2.that is. the tax paid at the stage of purchase of goods by a trader and on purchase of raw materials by a manufacturer. in simple terms. Only the value addition in the hands of each of the entities is subject to tax. the dealer has paid tax at 10 per cent on Rs 20 being the value addition in his hands. if a dealer purchases goods for Rs 100 from another dealer and a tax of Rs 10 has been charged in the bill. is a multi-point levy on each of the entities in the supply chain with the facility of set-off of input tax . Thus. VAT. . and he sells the goods for Rs 120 on which the dealer will charge a tax of Rs 12 at 10 per cent. being the difference between the tax collected of Rs 12 and tax already paid on purchases of Rs 10.

Rs 10 VAT payable .Rs 120 Tax payable on sale price .Rs 100 Tax paid on purchase . Purchase price .Rs 2 .Rs 10 (input tax) Sale price .Rs 12 (output tax) Input tax credit .

THANK YOU .