“VALUE ADDED TAX SYSTEM” (A study with reference to Thiruvallur District, Tamil Nadu, India).

A dissertation work submitted to the Pondicherry University in partial fulfillment of the requirement for the degree of

MASTER OF PHILOSOPHY (COMMERCE)
By

A. HARIKUMAR (Register No. 2100705)
Under the guidance of Thiru.S.ARAVANAN, ASSISTANT PROFESSOR (SG).

DEPARTMENT OF COMMERCE
SCHOOL OF MANAGEMENT
PONDICHERRY UNIVERSITY
Kalapet, Puducherry-14 NOVEMBER-2011

S.ARAVANAN, Assistant Professor (SG), Department of commerce, School of Management, Pondicherry University, Puducherry-14.

CERTIFICATE OF THE SUPERVISOR This is to certify that the dissertation entitled “VALUE ADDED TAX SYSTEM”(a study with reference to Thiruvallur District, Tamil Nadu, India) is a bonafide record of research work done by Mr. A.HARI KUMAR and submitted for the award of the degree of Master of Philosophy in Commerce of Pondicherry University. The dissertation is a record of independent research work undertaken by him under my supervision and guidance and that it has not previously formed the basis for the award of any degree, diploma, associateship, fellowship or any other similar title of this or any other university.

Place: Puducherry Date:

Supervisor

Forwarded Dean School of management Head of Dept Department of commerce

Mr. A.HARI KUMAR, M.Phil Scholar in commerce, Department of commerce, School of Management, Pondicherry University, Puducherry-14.

DECLARATION I hereby declare that the dissertation entitled “VALUE ADDED TAX SYSTEM” (a study with reference to Thiruvallur District, Tamil Nadu, India), submitted by me for the award of the Degree of Master of Philosophy in Commerce is a record of original research work done by me under the supervision and guidance of Thiru S.ARAVANAN,(Assistant Professor SG) and that the dissertation has not previously formed the basis for award of any degree, diploma, associateship, or any other similar title.

Place: Puducherry Date: (A.HARIKUMAR)

ACKNOWLEDGEMENT
I extend my heart full gratitude to the Almighty for his blessings showered on me to complete this piece of work. I express my wholehearted thanks to Dr.M.Ramadoss, Dean, School of Management, and director of studies, Pondicherry University. It is from my heart that I express my deep and sincere thanks to my guide and supervisor Thiru. S. Aravanan, Assistant professor (SG) in Department of Commerce, Pondicherry University who inspired me a lot while doing my dissertation. Without his advice, guidance and supervision, I would not have submitted this research work in time; no words are there to express my gratitude to my guide. I am really very proud to have a guide like him. I also express my gratitude to Dr. Malabika Deo, Professor and Head Department of Commerce, Pondicherry University for her encouragement and support for doing M.Phil research work. I am extremely happy to extend my sincere thanks Dr.P.Palanichamy Professor in Department of Commerce, Pondicherry University for his encouragement and valuable suggestions. I thank Dr.P.Natarajan, Professor, Department of Commerce, Pondicherry University for his inspiration. I thank Dr. Dr. G. Shanmugasundaram, Associate Professor, Department of Commerce, Pondicherry University. I thank Dr. D. Lazar, Associate Professor, Department of Commerce, Pondicherry University. My thanks to Mr. Nidheesh, Assistant professor, Department of Commerce, Pondicherry University for his guidance. I thank Dr. P.S. Velmurugan, Assistant professor, Department of Commerce, Pondicherry University.

I thank Dr. S. Shijin, Assistant professor, Department of Commerce, Pondicherry University. I thank to Mr A.N.Veerasalingam Assistant Commissioner of Commercial Tax Department. My sincere thanks to Mr.Lakshmipathy Aassistant Commissioner of Commercial Tax Department. And I thank Mr.Nandhagopal, M/s.Renu and Mr.Maduraipandian the superintendents of Commercial Tax Department. I also thank all my friends and co-researchers who helped me a lot academically. I owe thanks to teaching and non-teaching staff of Pondicherry University. Especially non teaching staff members of Department of Commerce, Pondicherry University. Last, but not least, I thank all those friends who helped me either directly or indirectly in the successful completion my research work. I am greatly indebted to all these persons.

Place: Puducherry Date : A.HARI KUMAR

i

CONTENTS
CHAPTERS I II III IV V BIBLIOGRAPHY ANNEXURE Particulars INTRODUCTION AND DESIGN OF THE STUDY REVIEW OF LITERATURE THEORETICAL FRAMEWORK ABOUT VAT ANALYSIS AND INTERPRETATIONS SUMMARY, FINDINGS AND CONCLUSIONS Page No. 1-10 11-24 25-46 47-87 88-94 95-97 98-108

14(b) 4.5 4. No.2 4. .7 Gender Age Group Marital Status Educational Qualifications Type of Business Annual Turnover Respondents’ Business Age VAT Officials Demographic Variables 4.10 4.15(b) 4.6 4.14(a) 4.ii LIST OF TABLES Sl.13 Gender Status Age Group Marital Status Education Level Respondents Designation Income Factor Analysis Of VAT Officials 4.14(c) 4.9 4.1 4.3 4.8 4. Particulars VAT Payers Demographic Variables 4.4 4.12 4.15(a) 4.11 4.14(d) KMO and Bartlett's Test Total Variance Explained Rotated Component Matrix List of factors Factor Analysis Of VAT Payers 4.15(c) KMO and Bartlett's Test Total Variance Explained Rotated Component Matrix 66 66 68 60 60 62 64 54 55 56 57 58 59 47 48 49 50 51 52 53 Page No.

16 4.26 4.19 4.18 4.22 Gender * Work Burden Education * Work Burden Business * Work Burden Turnover * Work Burden Turnover * Incidence Age of Business * Incidence Education * Rate Knowledge Cross tabulation results Relating To VAT Officials 69 70 71 71 72 72 73 4.33 Education and Work burden Designation and Registration Results of Correlation 78 79 4.27 4.25 Gender * Work Burden Designation * Work Burden Age Group * Work Burden One Way ANOVA Relating VAT Payers 74 74 75 4.24 4.15(d) List of Factors Cross tabulation results Relating To VAT Payers 68 4.28 4.17 4.29 4.23 4.34(a) Commercial Tax Department Gross Receipts 4.30 4.32 4.21 4.31 Age of Business and Work burden Education and Awareness of Exemptions Registration and Incidence of Tax Turnover and Convenience to pay tax Age and business and Tax evasion Turnover and Tax avoidance One Way ANOVA Relating VAT Officials 75 76 76 77 77 78 4.20 4.iii 4.34(b) Correlations 79 80 .

40 knowledge of VAT rates VAT or TNGST continue in Tamil Nadu Awareness of proposed GST Assistant from VAT consultant Registration VAT payers’ opinion 4.41 System to continue in Tamil Nadu Revenue collection under VAT 4.39 4.iv Result of Paired t-Test 4.42 4.36 4.37 4.38 4.35(a) 4.35(c) Total Revenue of the Government Paired samples statistics Paired samples test VAT officials’ opinion 4.43 Commercial Tax Department Gross Receipts (Amount in Crores) Commercial Tax Department Gross Receipts (Amount in Crores) 86 87 83 81 82 82 82 83 80 80 81 .35(b) 4.

15 Scree plot of VAT officials Scree plot of VAT payers Revenue collection under VAT 4. No.9 4.8 4.4 4.7 Gender Age Group Marital Status Educational Qualifications Type of Business Annual Turnover Respondents’ Business Age VAT Officials Demographic Variables 4.17 Commercial Tax Department Gross Receipts (Amount in Crores) Commercial Tax Department Gross Receipts (Amount in Crores) 86 87 62 67 54 55 56 57 58 59 47 48 49 50 51 52 53 Page No.6 4.14 4.16 4.v LIST OF FIGURES Sl. .3 4.2 4.11 4.12 4. Particulars VAT Payers Demographic Variables 4.13 Gender Status Age Group Marital Status Education Level Income Respondents Designation Result of Factor analysis 4.5 4.1 4.10 4.

Thus. may be grouped as indirect taxes. it will affect the development of trade and industry and the economy as a whole. Hence “taxation should not be like killing the goose that lays golden eggs”. and the people in the same financial position should be taxed in the same way without any discrimination (1). Commodity taxes or sales tax. Indirect taxes are shifted and the incidence of these taxes fall on persons other than the original payers. The Objectives of taxation are: Main objectives i. The means of taxation. In other words. Generation of revenue Maintenance of welfare state . A good tax system should not affect the ability and willingness of the people to work. are a matter of hot dispute in politics and economics. save and invest. The general public should be taxed according to their ability to pay. Indirect taxes are those taxes which have their primary burden or impact on a single person. a sound tax system should contribute to the economic development of a country. ii. But that person succeeds in shifting his burden to others.1 CHAPTER I INTRODUCTION AND DESIGN OF THE STUDY 1. so discussions of taxation are frequently tendentious. an indirect tax is imposed on one person but is paid partly or wholly by another. Government is the only person to levy tax. customs duties etc. and the uses to which the funds raised through taxation should be put. If not. “unrequited payment”. Without tax the government cannot do any social benefit activities.Taxes may be paid in cash or kind (although payments in kind may not always be allowed or classified as taxes in all systems). Hence tax is compulsory payment or contribution by the people to the government for which there is no direct return to the tax payers. Tax imposes a personal obligation on the people to pay the tax if they are liable to pay it.1 Introduction: A tax is “a back bone of every country to meet their social obligations. excise duties. paid by the individuals or businesses to a government (central or local)”. Tax can be defined as “an involuntary fee or more precisely.

1. During the year 1939. iii. it is a multi-stage tax. TNGST is replaced by VAT from the year 2007. This mechanism ensures that the tax is neutral regardless of how many transactions are involved. arrack and toddy shops were functioning in Madras Presidency. levy sales and purchase tax with in Tamil Nadu. which can have a snowballing effect on prices. resulting in higher revenues to the government. Madras Presidency introduced “Sales Tax” in 1939. which means that the actual tax burden is visible at each stage in the production and distribution chain. tax evasion will be checked. Following the Madhya Pradesh “petrol tax”. The Tamil Nadu General Sales Tax Act was enacted in 1959and it is called TNGST Act 1959. During the British rule. levied only on value added at each stage in the chain of production of goods and services with the provision of a set-off for the tax paid at earlier stages in the chain. It is a general tax that applies. Subsidiary objectives i. via a system of deductions whereby taxable persons can deduct from their VAT liability the amount of tax they have paid to other taxable persons on purchases for their business activities. The Govt. In other words. It is assumed that due to cross-checking in a multi-staged tax.2 Evolution of VAT Origin: Sales Tax began in India with “petrol tax” introduced by the government of Madhya Pradesh. ii. The objective is to avoid 'cascading'. It is a consumption tax because it is borne ultimately by the final consumer. It is collected fractionally. the Government of Madras Presidency earned 8 crore rupees as revenue from the arrack and toddy shops. was interested in removing the liquor shops and compensate the loss of revenue by levying sales tax. Sales tax initiated in Tamil Nadu has been levied throughout India. Value Added Tax (VAT) is a general consumption tax assessed on the value added to goods and services.2 iii. in principle. It is charged as a percentage of prices. Prevention of concentration of economic power Re-distribution of wealth for the common good. Its purpose is to enable the govt. to all commercial activities involving the production and distribution of goods and the provision of services. iv. Accelerate saving and thereby investment Repaid economic development Generation of employment. It is not a charge on companies. Over 130 .

 Though many number of research studies have been undertaken in the area of Value Added Tax system.5 Objectives of the Study  To study about value added tax system in general. For the purpose data has been proposed to be collected from both the sources of primary and secondary.  To examine the influence of various factors on the work burden of VAT officials. India has been undertaken. 1.  This study also attempts to focus on the level of Work burden of VAT officials. The data are collected from Commercial Tax Offices. 1.3 countries worldwide have introduced VAT over the past three decades and India is amongst the last few to introduce it. This study also tries to prove whether the revenue derived from the VAT is more compared to other tax systems like TNGST.3 Scope of the study This present study concentrates on the level of work burden of business concerns. The collected data are to be analysed using appropriate statistical tools. 1. Tamil Nadu.e. Secondary data are collected from Tamil Nadu Statistical Reports 2010-11. VAT consultants and VAT payers. In the present work study of Value Added Tax with reference to Thiruvallur District. only few researchers have done their research in Tamil Nadu jurisdiction. VAT payers in Thiruvallur District in Tamil Nadu. For the purpose of primary data suitable questionnaire has been circulated to the respondents in Thiruvallur District.4 Significance of the Study  The present study tries to focus on a elaborate explanation about the Value Added Tax in Tamil Nadu.  The growth of revenue appreciation of the Tamil Nadu State Government also has been focused in this study. VAT officials and VAT consultants in Thiruvallur District in Tamil Nadu only.  To study the profile of VAT payers and VAT administrators. . Tax consultancy offices and various shops i.

Thiruvallur and some parts of Chennai which comes under jurisdiction of Thiruvallur District. The preparation of such a design facilitates research to be as efficient as possible yielding maximal information. the suitable design will be one that minimizes bias and maximizes the reliability of the data collected and analyzed. he will have to state the conceptual structure within which research would be conducted. out of while 130 are in the VAT payers group and the remaining 130 from the VAT officials and consultants. the function of research design is to provide for the collection of relevant evidence with minimal expenditure of effort.1 Research Design The research problem having been formulated in clear cut terms.e.. Respondents from each area are selected on convenient cum judgement basis. i. Similarly Sample respondents for VAT officials and Consultants Groups are selected from the areas of Ponneri.. (i) Exploration.  To examine whether value added tax system helps to revenue appreciation to the government compared to other tax systems like TNGST and finally  To find whether VAT system is convenient to the VAT administrators as well as the VAT payers. Sample respondents for VAT payers Groups are selected from the areas of Ponneri. (ii) Description. viz. In other words.4  To examine the influence of various factors on VAT compliance by VAT payers.6. 1.6 Methodology 1.2 Sampling Method The method followed for selection of sample respondents is convenient cum judgement sampling. A flexible research design which provides opportunity for considering many different aspects of a problem is considered appropriate if the purpose of the research study is that of exploration. the researcher will be required to prepare a research design. Kavarai Pettai and Gummudi Poondi of Thiruvallur District. time and money. 1. But how all these can be achieved depends mainly on the research purpose. But when the purpose happens to be an accurate description of a situation or of an association between variables. Thus totally 260 respondents are selected. Research purposes may be grouped into four categories.6. (iii) Diagnosis. and (iv) Experimentation. .

books. 1. Assertion.3 Study Area The area of study is Commercial Tax Offices. 2.6. This may not be a major part of data collection but at least. the researcher gathers demographic data and describes geographic and historical particulars. Tax consultancy offices and various shops in Thiruvallur district in Tamil Nadu. 3. The remaining 21 questions were formed with a view that the responses fall under the following classification: 1.5 Primary data The researcher has used questionnaire as a tool for collecting primary data.Awareness. in proposing a particular setting.6. 1. among them the first 9 questions are on demographic base of the respondents. The specimen questionnaire are given an appendix I and II.Personalized and 4. In this study the secondary data were collected for the purpose of analysing the revenue receipts of the Tamil Nadu Government from the Tamil Nadu statistical report. statistical report and past records. annual reports.6. .Opinions. data on the background and historical context are gathered.6. professional magazines. The researcher has formulated a questionnaire consisting of 30 questions for VAT payers and 45 questions for VAT consultants and VAT officials and distributed among the 260 respondents. Both primary and secondary data are used in the work.Assertion. The remaining 38 questions are formed with a view that the responses fall under the following classification: 1. first 7 questions are on demographic base of the respondents.Opinions.Personalized and 4. Primary data will be collected through well designed questionnaire (five pointlikert scale from strongly agree to strongly disagree) from VAT payers and VAT officials in Thiruvallur Dist at Tamil Nadu.5 1. out the 45.Awareness. 3. The questionnaire of VAT consultants and officials consists of 45 questions.6 Secondary Data The Secondary data for this purpose were collected from various journals. 1. The questionnaire of VAT payers consists of 30 questions.4 Data Collection Procedure For every qualitative study. 2.

The chi-square test for goodness of fit determines if the sample under investigation has been drawn from a population. Chi-square test for goodness of fit. 2.6 1. The formula is (O  E )2   E 2 Where O = the frequencies Observed E = the frequencies Expected .7. The only summary statistics useful for such data are frequencies and percentages. while the test for homogeneity investigates the issue whether several population are homogeneous with respect to particular characteristic. 1. which follows some specified distribution.2 Chi square Test Chi-square is one of the very popular methods for testing hypothesis on discrete data. SPSS is a very powerful and user friendly program for statistical analyses. descriptive statistics.0 version is used in this research for analysing the datum(2). Chi-square test for homogeneity. 3.7 Tools Used for Analyses: 1. Chi-square test of independence. data management. SPSS 16. and complex statistical analysis. and plots of distribution and trends. Finding descriptive statistics for such data is meaningless. SPSS can take data from almost any type of file and use them to generate tabulated reports. statistical analysis and presentation. There are three different types of chi-square analysis: 1. The Chi-square test of independence is used to test the hypothesis that two categorical variables are independent of each other. Anyone with a basic knowledge of statistics can easily learn how to run very complicated analysis in SPSS with a simple click of the mouse. charts. Contingency tables along with some chi-square statistics are used in such kind of data.1 SPSS Package The abbreviation SPSS stands for Statistical Package for the Social Sciences and is a comprehensive system for analysing data. The discrete data can be nominal or ordinal. In this research the researcher used the Chi-square test of independence.7. SPSS package consists of a set of software tools for data entry.

It is a case of negative correlation. On the other hand. It uncovers the main and interaction effects of classification or independent variables on one or more dependent variables.7 ∑ = the sum of  2 = Chi-square value.3 Analysis of Variance (ANOVA) ANOVA or analysis of variance is used to compare the means of more than two populations.7. Where there are two or more than two independent variables. Both the variables X and Y may be random or may be that one variable is independent (non-random) and the other to be correlated are dependent. It has wide application in business and statistics (3). 1. a small value of X appears with large values of Y. When the two variables are meaningfully related and both increase or both decrease simultaneously. ANOVA has found extensive application in psychological research using experimental data. The formula for calculating „F‟ test is SB2 F  Sw2 Where F = Ratio of Variance (F Value) S B 2 = between group variance S w 2 = within group variance 1. . the two variables are said to be correlated.7. the analysis concerning relationship is known as multiple correlations. If increase in any one variable is associated with decrease in the other variable. then the correlation is termed as positive. When the changes in one variable appear to be linked with the changes in the other variable. the correlation is termed as negative or inverse.4 Correlation Correlation is a technique which measures the strength of association between two variables. If small values of X appear with small values of Y and large values of X come with large values of Y. then correlation is said to be positive. Suppose marks in Mathematics are denoted by X and marks are Statistics are denoted by Y.

. Such experiments where the observations are made on the same sample at two different times. seeks to resolve a large set of measured variables in terms of relatively few categories.5 Dependent (paired) samples t-Tests In case of independent samples test for testing the difference between means. Where. especially pertaining to social and behavioural sciences. Factor analysis. d = Difference between Matched Scores N = Number of pairs of scores 1.6 Factor Analysis Factor analysis is by far the most often used multivariate technique of research studies.7. However.7. This technique allows the researcher to group variables into factors (based on correlation between variables) and the factors so derived may be treated as new variables and their value derived by summing the values of the original variables which have been grouped into the factor (4). is called dependent or paired sample t-Test. known as factors. error variation. Formula for factor analysis: Y = Xβ + E Where Y= matrix of measured variables X= matrix of common factors β = matrix of weights (factor loading) E = matrix of unique factors. this assumption limits the scope of analysis as in many cases the study has to be done on the same set of elements to control some of the sample specific extraneous factors. it is assumed that the observations on one sample are not dependent on the other.8 1. thus.

9 1. Chapter I: Deals with introduction. The study is based on the respondents‟ opinion which is based on their attitude. methodology of the study and limitation of study. The respondents felt unwilling in answering some of the questions as they feel that the opinion would turn against them. 1. The period of the study is only six months. Chapter II: Presents the review of literature relating to the study. Chapter V: Presents main findings of the study. . suggestions and conclusion of the study. the attitude may change. Chapter III: Gives a theoretical framework about Value Added Tax system and its explanation. Chapter IV: Represents the detailed Analysis of the primary and secondary data and interpretation with statistical calculations. The improper opinion of the respondents may also affect the nature of the results.9 Chapterization: This study comprises of five chapters.8 Limitations of the Study The study concentrates in Thiruvallur district of Tamil Nadu only. objectives of the study. scope of the study.

2005.Balachandran “Indirect Taxation”.10 REFERENCES: 1. New Delhi-110 044. Response Book. http://www. 3. New Age International Ltd.Gaur and Sanjaya S. 10th EDITION.Gaur “Statistical Methods For Practice and Research(A Guide to data analysis using SPSS)”. 1994. New Delhi-02. 2. C. Sultan Chand Publications.emathzone.R. Second Edition. Wiley Eastern Ltd. Business Books from SAGE Publications Ltd. New Delhi-110 002.com/tutorials/basic-statistics/correlation.html 4.Kothari “Research Methodology (Methods and Techniques)”. . Ajai S. V.

(1994).uq.11 CHAPTER II REVIEW OF LITERATURE Review of Literature Introduction Tax is a back bone of every country. would be 4.9%. It plays an important role in countries’ developmental activities.edu. compared to the actual general rate of .(1) “TAX EVASION AND ELUSION OF VALUE ADDED TAX IN COLOMBIA”-They examine the three aspects to the value added tax in Columbia. it has recently been declining. This is closely connected with demonstrating what the researcher knows about the field. the VAT rate that would generate the same amount actually collected in 1994. Fist they show that although the VATs’ productivity is at an acceptable level according to international standards. This means more than reporting what the researcher is reading and understanding. they estimate tax evasion and elusion for 1994. Many researchers in the past had taken up various studies relating to the value added tax in India and elsewhere in other parts of the world.  Finally it allows establishing the theoretical framework and methodological focus even if the researcher is proposing a new theory or a new method. It is the knowledge of research field which allows identifying the gap which the research could fill. Their results indicate that the international VAT evasion rate is 32. Need for review of literature  First review of literature demonstrates knowledge about the field. the researcher needs to read it critically and to write in such a way that shows the researcher has a feel for the area and also know what the most important issues are and their relevance to his work.au) Now review of a few related works is given below: Roberto Steiner and Carolina Soto.1%. Second. (www. This chapter reviews various literatures relating to value added tax.  It justifies the reason about research. Assuming that there were neither evasion nor exemptions.6%. whereas the total evasion of the tax is 28.

It then considers. Finally. The ability of the tax administration to enforce compliance with the VAT is shown to be sensitive to the knowledge that the tax administration has about the production technology.(2) “VALUE ADDED TAX EVASION. it is shown that a balanced-budget shift from a payroll tax to a VAT will increase employment if the rise in the VAT does not alter consumer prices. Laszlo Goerke. AUDITING AND TRANSACTIONS MATCHING” -They examined the impact of enforcement on the revenue effectiveness and efficiency consequences of the VAT. sufficiently intensive cross matching can induce truthful reporting. conditions under which the VAT leaves input prices undistorted are found and the content of the often made claim. Arindam Das Gupta and Ira N. in principle and by simulation. (4) “THE OPTIMAL THRESHOLD FOR A VALUE-ADDED TAX”. by imposing a constant wedge. Michael Keen and Jack Mintz. also for 1994. that a VAT is self-enforcing. the tax becomes clearly progressive. and regardless of the expected success rate in auditing of the tax administration. Assuming unemployment to be caused by efficiency wages.(3) “VALUE-ADDED TAX VERSUS SOCIAL SECURITY CONTRIBUTIONS” -It is a discussion paper in order to alleviate unemployment it is often recommended to reduce social security contributions (SSC) and to compensate for the ensuing loss in revenues by a rise in the value-added tax (VAT). although its progressivity is not monotonic throughout income deciles. However. According to the actual expenditure structure and taking into account exemptions and excises. In the model. employing an annual time frame analysis. they conclude that the VAT is slightly progressive.12 14%.They develop a simple rule characterizing the optimal threshold in terms of a trade-off between tax revenues and collection costs. (2000). the employment impact will depend on the nature of the unemployment compensation system. they verify if the tax is really as regressive as theory suggests. It can also distort input use and output decisions even if auditing alone has no adverse effects. Transactions matching are shown to have very different effects from auditing: Even when auditing alone is unable to induce non-zero taxpayer reports. for example. On the other hand. as households are ordered by deciles on a consumption basis instead of an income basis. (1996). matching leads to distorted purchase and sales transactions. If the effects of a shift from SSC to the VAT on the worker's effort are neutralized. (1999). the implications for the optimal threshold of the production inefficiencies . Gang. is explored.

Replacing the old indirect tax structure with a VAT is welfare worsening. One common advantage perceived in the value-added tax. for smaller traders than large. in particular. it fails to address investment levels. Much emphasis is often given. food and food products and textiles are exempted. In practice.6% increase in real GDP. reduce administration and compliance costs. to the regressive nature of the compliance costs associated with the VAT. . The analysis here has focused on the central trade-offs to be faced in choosing the threshold for a VAT: between the desires to increase tax revenue. Finally he concludes. (2003). causing welfare loss. and minimize the distortions arising from the differential treatment of firms above and below the threshold. with lower welfare loss if essential commodities are exempt from VAT. distributional effects are naturally a major concern. The increase in final consumer prices on account of reduced tax base leads to higher price of essentials. Zero rating v/s exemption plays an important role on welfare. Even a change in tax / subsidy policy of one sector (agriculture) produces a dramatic change in welfare. He highlights that large amounts of tax revenue are owed to government. Against this. relative to value added. (2002). replacing the old indirect tax structure with a VAT is welfare worsening.(6) “THE MACROECONOMIC IMPACT OF THE IMF RECOMMENDED VAT POLICY FOR THE FIJI ECONOMY: EVIDENCE FROM A CGE MODEL”-He uses a computable general equilibrium model to examine the economy wide effects of this VAT policy and find that while the VAT improves government revenue and brings about a small 0. Agriculture sector unambiguously plays a crucial role in welfare. Paresh Kumar Narayan. Sameer R. The increase in final consumer prices on account of reduced tax base leads to higher price of essentials. however. for instance (and a common source of resistance to its introduction) is the prospect of its yielding information useful for enforcement of the income tax. generally thought to be more burdensome. When agriculture.(5) “A GENERAL EQUILIBRIUM ANALYSIS OF VAT IN INDIA”-He evaluates the welfare implications of a VAT in the static and a sequentially dynamic context after accounting for the political and administrative constraints facing the Indian government in implementing a VAT.13 implied by the differential treatment of those above and below the threshold. the welfare loss is reduced by half on account of lower final tax rates on consumption. Rege. must be borne the competitive advantage enjoyed (at least in respect of sales to final consumers) by those who remain below the threshold. which causes welfare loss. VAT actually leads to a decline in investments and a reduction in real consumption and national welfare.

those costs represent a diversion of resources from more productive activities and an economic loss to the country. From that they deduce that the IMF policy is misdirected.M.Govinda. that will provide the elbow room necessary for calibrating future reforms. excise. The reforms in tax administration promise increased revenues and. hopefully.(7) “TAX SYSTEM REFORMS IN INDIA: ACHIEVEMENTS AND CHALLENGES AHEAD”. The total VAT compliance and administration costs incurred by Northern Cyprus (in 2003) and Bolivia (in 2002) are estimated at. The personal income tax continues to be narrow based. revenue concentration on diesel and petrol has high efficiency costs. Rao.(2005). for example. Northern Cyprus and Bolivia.14 This is three times more than what government will collect from the 25% increase in VAT. the authors provide data to show how high compliance and administration costs can go when governments singlemindedly pursue the goal of controlling VAT evasion. Over the years. the authors measure the compliance costs to taxpayers and the administration costs to the tax authorities in those two countries. and Jenkins. an alternative to VAT is to upgrade government’s tax collecting mechanism.55 times the total budgetary expenditures to administer . much remains to be done to make the tax system broad-based. customs and sales taxes. respectively. Other countries that impose a VAT face similar problems and have proposed various solutions. refund some of the VAT paid on the purchases for which final consumers have obtained official receipts from sellers. Nonetheless. The recent focus on tax administration promises rich dividends. complicated and confiscatory to the one that is far more efficient. Reform in the sales tax has only just begun and a lot remain to be done to evolve destination-based retail VAT. the thrust and direction of reforms have been to improve revenue productivity while minimizing distortions.50 and 1. Despite reforms since 1991. Berhan. The reform to convert the state level sales tax into VAT this year is a major initiative. (2005).(8) “THE HIGH COSTS OF CONTROLLING GST AND VAT EVASION”.He examined the Indian tax system has come a long way from the narrow based. Bahro A. In this light. productive and efficient. In corporate tax. Solutions to the problem usually involve increased audits (and therefore increased compliance costs) for taxpayers and increased administration costs for governments. 1.They developed the Canada's goods and services tax (GST) is sometimes said to be self-enforcing--vendors will always charge the tax because purchasers will always want to claim input tax credits. Glenn P. GST evasion is a reality. The GST is a value-added tax (VAT). Although similar schemes are not likely to be directly copied in Canada. In this article.

In both countries. and so can seek refunds of excess credits from government. They evaluate the VAT in the context of other distortions in the economy by computing the marginal cost of funds—the effect of raising government revenue by increasing the VAT rates on household welfare. they describe South Africa’s value added tax (VAT).(11) “IS THE VALUE ADDED TAX NATURALLY PROGRESSIVE?”-This paper employs a rich data set on household incomes and expenditures for the Dominican Republic. Marna Kearney et al. compared to other tax instruments in South Africa. transitional. including opportunities for fraud and corruption. For the analysis. serious problems arise in practice. revenue-neutral tax systems in which they reduce the VAT and raise income taxes.(10) “VATREFUNDS: A REVIEW OF COUNTRY EXPERIENCE”. Glenn P. and developed countries. (2005). Households are disaggregated into income deciles. While refunding is straightforward in principle. (2006). Jenkins et al. Then they evaluate alternative. It evaluates the effectiveness of these approaches and suggests a model of best practice that takes into consideration compliance issues faced by countries during different stages of development. Graham Harrison and Russell Krelove. These estimations include the effect of the different rates of the tax . It also contains information on the type of establishment from which the items were purchased. The data set covers 2042 goods and services purchased by households of different income and consumption levels. showing that (1) the VAT is mildly regressive and (2) it is an effective source of government revenue. they use a computable general equilibrium (CGE) model with detailed specification of South Africa’s tax system.15 the entire domestic tax system. With this information they estimate the effective rate of tax that has been paid on each item purchased by households. They demonstrate that alternative tax structures can benefit low-income households without placing excess burdens on high-income households. the compliance and administration costs of the VAT refund schemes amounted to more than the 5 percent of the total revenues collected by the VAT systems. (2005). This makes the refund process the ―Achilles heel‖ of the VAT.In this paper they explained a key feature of the invoicecredit form of value-added tax (VAT) is that some businesses— notably exporters—will pay more tax on their purchases than is due on their sales. Finally they examine the refund approaches of tax administrations in 36 developing.(9) “AN ANALYSIS OF SOUTH AFRICA’S VALUE ADDED TAX” -In this paper. and denial of refunds by governments with cash shortages.

as well as the fraud potential of using identification numbers.They examined VAT evasion caused by the growth of carousel fraud has recently led to significant VAT revenue losses in the EU.(13) “CAN REFORM MODELS OF VALUE ADDED TAXATION STOP THE VAT EVASION AND REVENUE SHORTFALLS IN THE EU?”. whereas the multiple use of an invoice for fraudulent purposes plays no major role. due to the unclear delimitation. If a federal VAT replaces these taxes. including all EU member States.16 compliance across households with different expenditure levels. (2007). and about 40 nations use it. before a radical change is made to the VAT system with unforeseeable results. this tax is growing in popularity. A peculiar reason for not adopting VAT in most of the federal countries is that traditionally. a notion credited to Maurice Laure. The results of the study show that the burden of the current VAT in the Dominican Republic is progressive over all the quintiles of household expenditure. The elimination of the problems in the current VAT system should not lead to new abuses from which the negative effects on VAT revenue may be just as large or even larger. it would be a mistake to overestimate the control possibilities. which. would apply for most enterprises. This study discusses three reform models of the VAT system in Germany. whose implementation would open up further possibilities for tax evasion and lead to a considerable increase in administrative costs. leading to the fraudulent retention of revenue. Finally they conclude. But most of the other large industrial nations use it. then the States would have no revenue base and the federal countries would soon resemble Unitary States. France became the first nation to adopt a value-added tax. however. Arvind Ashta. even if they are included in the legal tax base.(12) “EUROPEAN VAT – GENERAL PRINCIPLES”-In 1954. Today. As a notable exception. (2007). One of the main problems after a system change would seem to lay in the future coexistence of two VAT systems. all available possibilities to make the present system more fraud-secure should be . State governments are loath to give up their tax bases. on which poor households spend most of their income. Andrea Gebauer et al. Also. have not taken into account the fact that in developing countries the commodities. sales taxes and indirect taxes were invariably left to the States in the constitution. Carousel fraud works such that intra-EU firms repeatedly carry out cross-border supply and purchase of goods and services. and are administratively impractical to tax. Input-tax reimbursements are now often illegally claimed primarily by the holder of an invoice. it is not used by the United States on the federal level. For all these reasons.

Finally. For these reasons. as more and more countries continue to adopt it and grapple with ways of improving its design and implementation.In his research he develops America is one of the few nations without a value-added tax (VAT). but there is growing pressure to impose the language. .(2009). The sign of the revenue impact is generally ambiguous. the ultimate result of each of the two taxes is in principle the same in taxing of the individual consumption.He reviewed and compared briefly the Pennsylvania Sales Tax and the Bulgarian VAT.(15) “VALUE ADDED TAX AND SALES TAX (COMPARATIVE OVERVIEW)”. In simple terms.17 exhausted. Accordingly. Lyubomir P.They proved that VAT. of a system of equations describing the probability of VAT adoption and the revenue impact of the VAT. this paper first shows that a tax innovation—such as the introduction of a VAT—reduces the marginal cost of public funds if and only if it also leads an optimizing government to increase the tax ratio. but most countries that have adopted a VAT seem to have gained a more effective tax instrument in doing so. Thus it revealed that the structures of the sales tax and the VAT are different. the VAT is very much a work in progress.(16) “VAT: THE ELIXIR FOR AMERICA’S ECONOMIC ILLS?”. However. (2007). a VAT is a type of national sales tax. it is not evident why the financial means required for the establishment of extensive control mechanisms in a new system could not also be used for the improvement of the present system. However. as its proponents claim. This leads to the estimation. (2007). the Pennsylvania sales tax and the Bulgarian VAT share many common features and the differences between them are often subtle. it is imposed on the ―value added‖ at each stage of the production process. Neil. Michael Keen and Ben Lockwood. an especially effective form of taxation? To address this. Some like the VAT because it offers a new way to finance bigger government. Benjamin A. It focused on the questions of when tax is imposed. Zabov. and others. instead of being collected at the cash register. compared to the income tax – it does not impose as much damage on the economy. Supporters of limited government oppose the tax because it makes it easier for politicians to expend the size of government. what are the tax bases and the applicable tax rate and on the exclusions from the sales tax and the credit method used for VAT purposes. Others like the VAT because – at least.(14) “THE VALUE-ADDED TAX: ITS CAUSES AND CONSEQUENCES”. on a large panel.

the problems if any that they were encountering in using them as well as get possible solutions to the problems. taxes and interest rates.(18) “WORLDWIDE VERSUS TERRITORIAL TAX SYSTEMS: COMPARISON OF VALUE ADDED TAX AND INCOME TAX”. sales increase and positive effects on employment (as well as decline in the shadow economy) is proved even in this research. (2009). There are many countries that impose territorial VAT systems.They aimed to assess the effectiveness of Electronic Tax Registers (ETRs) in the processing of Value Added Tax returns.In designing an income tax or a VAT. the literature fails to recognize some existing VAT systems as worldwide systems. (2010). (2009).18 Helena Blazic and Mira Dimitric. tax evasion. He compares these systems with the commonly used territorial VATs. he suggests that at least the New Zealand and South Africa VATs can be analyzed as worldwide VAT systems. To date. The EU expected existence of a link between VAT reduction. a country generally must decide how broadly. the pass-through to prices is very moderate as well as other effects. Since many researchers had concentrated much of their work on tax systems.(17) “THE REDUCED VAT RATE FOR SMALL BUSINESS IN CROATIA”. but relatively few impose a worldwide VAT system.(19) “THE EFFECTIVENESS OF ELECTRONIC TAX REGISTERS IN PROCESSING OF VALUE ADDED TAX RETURNS”. There are many countries with worldwide and territorial income taxes. However. geographically. The study sought to determine the extent to which the Electronic Tax Registers are being used by the taxpayers. Survey for Croatia is done by small business owners’ interviews and encompasses descriptive and inferential statistics based on parametric tests. The reduced VAT rate could have some positive results for the restaurants and bars only. a lot was desired especially in this area to . It starts with the assumption of no substantial effect. Alan Schenk. based on the EU VAT legislation development. This paper also raises the question of whether differences in the design of a VAT as a territorial or worldwide VAT represent only differences in form or differences in substance. The analysis includes effects on prices. sales. price reduction. Lumumba Omweri Martin and Bernard M. In this paper.Obongo. The country may choose to impose its income tax or VAT under a worldwide or territorial principle. There exists also some possibility for construction of housing and construction services related to housing as well as some other labour intensive services. it wants to assert its tax authority.In this paper they developed to assess the potential effects of introduction of the reduced VAT rate for small business. shadow economy and employment.

middle level and low managers. The population under study comprised of 98 VAT registered taxpayers in Kisii town according to the regional KRA office’s records which was stratified into. One of them is the harmonization of value added tax (VAT) with the requirements of Directive. Hoteliers in Croatia set aside large funds for facility investments. (2010). VALUE ADDED TAX AND TAX REVENUE IN DEVELOPING COUNTRIES”. The study sought to establish if the Electronic Tax Registers had increased the speed at which taxpayers processed their VAT returns and if there were any associated costs in the processing of VAT. The respondents were senior. Out of the 78 registered VAT taxpayers to whom the questionnaires were administered.They developed Republic of Croatia is currently carrying out preparatory measures for accession to the European Union. The findings of this research project will assist the Kenya Revenue Authority look for ways of improving the processing of VAT returns. Christian Hubert Ebeke. This gives a response rate of 87% percent. (2010). Budget funds collected from tourism need to be refunded to the tourism industry. wholesalers and large scale retailers and supermarkets.19 assess the effectiveness of Electronic Tax Registers had been recently introduced by the Kenyan tax authority. Data analysis tools used in the research were Excel and SPSS and data was presented in form of tables and graphs. Renata Dombrovski and Sabina Hodzic. service providers. Data was collected from 78 registered VAT taxpayers in Kisii town. Strong taxation affects tourism negatively. Tourists face higher bid prices which puts the country in an unenviable position among Mediterranean competitors.Here Christian Hubert Ebeke examines the impact of international remittances on both the level and the instability of government tax revenue in receiving countries. This is supported by the fact that remittances are largely used for consumption purposes and contribute to smoothing private consumption. which include partly high VAT rate of 23%. only 68 responded.(20) “IMPACT OF VALUE ADDED TAX ON TOURISM”. It is important to find an optimal solution within the VAT system to encourage tourism development. Using a large sample of developing countries observed over the period . The main instrument of collecting primary data was the questionnaires while secondary data was obtained from the KRA regional office.(21) “REMITTANCES. in order to achieve the market standards. It investigates in particular whether the presence of a value added tax (VAT) system increases the benefit of the inflows of remittances in terms of high and less volatile tax revenue ratio.

Synthesis of review of literature:From the above review of literature relating to VAT the following points emerge:  VAT is slightly progressive. the results highlight that remittances significantly increase both the level and the stability of government tax revenue ratio in receiving countries that have adopted the VAT. Thus there should be adequate education of the public and the trading community on the features of VAT. immune to lobbying pressures and ensures the economic growth. (2010). which emphasized much in the context of VISION 2020 by the industry. although its progressivity is not monotonic throughout income deciles. . K.N. The concept and issues are presented in this paper to make the people aware of the VATA and remove the misconceptions or notions about VATA and to draw the attention and participation of the different sections of the society for strengthening the VATA system. There should be immediate removal of CST.(22) “MACRO ECONOMIC EFFECTS OF VAT IN INDIA”. (2010). Rawat Deepa et al. The central government must fully take the state governments in confidence before imposing VAT. politicians etc. academic.20 1980-2006. the tax becomes clearly progressive.(23) “VALUE ADDED TAX ACCOUNTING: CONCEPTS AND ISSUES”. administration. It will encourage and result in a better administrated system that will close avenues of tax evasion. which is also evident from the successful introduction of VATA by developed countries. and even after factoring in the endogeneity of remittances and VAT adoption. entry tax etc. It would provide a steady source of revenue. simplicity. states additional tax. costs. Rao.The Value Added Tax Accounting (VATA) is one of those newly emerged concepts. as households are ordered by deciles on a consumption basis instead of an income basis. profession. this in turn could be used for reducing the debt burden in due course. etc. If enforced properly it would help in fiscal consolidation for the country.  Balanced-budget shift from a payroll tax to a VAT will increase employment if the rise in the VAT does not alter consumer prices. same legislation should be there for all states a grace period may be provided are some of the other suggestions paper has submitted. Dr. as VATA is regarded as a source of stable revenue.They developed VAT is seen as a prospective substitute of the present tax system. However. VAT is a comprehensive levy covering almost all production in its fold. business. The paper suggests that there should be no other state levels taxes such as octroi. its benefits. Shankaraiah and D. conducive to investment.

 The reforms in tax administration promise increased revenues and.  Replacing the old indirect tax structure with a VAT is welfare worsening. But only few researchers did their research about value added tax in India. hopefully.  Steps to be taken to make people aware of the VATA and remove the misconceptions or notions about VATA and to draw the attention and participation of the different sections of the society for strengthening the VATA system. This is three times more than what government will collect from the 25% increase in VAT. sales increase and positive effects on employment.  Large amounts of tax revenue are owed to government. that will provide the elbow room necessary for calibrating future reforms.  The Kenya Revenue Authority look for ways of improving the processing of VAT returns. reduce administration and compliance costs. The increase in final consumer prices on account of reduced tax base leads to higher price of essentials. very few are conducted in Tamil Nadu in that field. price reduction. and minimize the distortions arising from the differential treatment of firms above and below the threshold.21  The central trade-offs to be faced in choosing the threshold for a VAT: between the desires to increase tax revenue.  New Zealand and South Africa VATs can be analyzed as worldwide VAT systems.  The remittances significantly increase both the level and the stability of government tax revenue ratio in receiving countries that have adopted the VAT.  The EU expected existence of a link between VAT reduction. Among that few. causing welfare loss. . Research Gap (present study) There are many studies done in the field of value added tax throughout the world. The present research conducted in Tamil Nadu especially in Thiruvallur District focuses on the level of work burden and revenue collection of the State Government officials and also on the concerns of VAT payers.

The Macroeconomic Impact of the IMF Recommended VAT Policy for the FIJI Economy: evidence from a CGE model (Blackwell Publishing Ltd. Tax Reforms in India: Achievements and Challenges ahead (Journal of Asian Economics. An Analysis Of South Africa’s Value Added Tax (World Bank Policy Research Working Paper 3671. Rege. Govinda. p720-736. 17p) 9. Glenn. Berhan. Gang.22 References 1. 2003) 7. 19p) 8. VAT Refunds: A Review of Country Experience(International Monetary Fund. 2005) . 1994) 2. Value Added Tax versus Social Security Contribution (Social Science Research Network . p993-1011. 16 Issue 6. Rao. 2004) 5. Sherman Robinson and Karen Thierfelder. Value Added Tax Evasion. Roberto Ste iner and Carolina Soto. Bahro. Vol. Tax Evasion and Elusion of Value Added Tax in Colombia (Social Science Research Network. A General Equilibrium Analysis Of Vat In India (Blackwell Publishing Ltd. Sameer R. 2000) 6. Graham Harrison and Russell Krelove. Arindam Das Gupta and Ira N. 2005. Paresh Kumar Narayan. 1996) 3.Aug 1999) 4. Marna Kearney. M.P. August 2005) 10. Dec2005.A and Jenkins. Vol. Auditing And Transactions Matching (Social Science Research Network. Michael Keen and Jack Mintz: The Optimal Threshold for a Value Added Tax (Journal of Public Economics. Laszlo Goerke. 53 Issue 3. The high costs controlling CST and VAT evasion (Canadian Tax Journal.

Helena Blazic and Mira Dimitric. Lumumba Omweri Martin et al. 2009 page No 83-114) 18. Worldwide Versus Territorial Tax Systems: Comparison of Value Added Tax and Income Tax (Wayne State University Law School Legal Studies Research Paper Series No. Christian Hubert Ebeke. VAT: The Elixir for America’s economic Ills? (Journal of Finance and Accountancy. 11 pages) 20. 2007) 16. Value Added Tax And Sales Tax (Comparative Overview) (Social Science Research Network. The Value-Added Tax: Its Causes and Consequences ( International Monetary Fund . 1 (2010). 2009) 17. Value Added Tax And Tax Revenue In Developing Countries (2010) . Is the Value Added Tax Naturally Progressive? (Social Science Research Network 2006) 12. Renata Dombrovski and Sabina Hodzic. March 2007) 14. Arvind Ashta. Zabov.9. Lyubomir P. Glenn P. Alan Schenk. 09-27 December 8. chang woon nam & Rudiger parsche. Jenkins et al. Impact Of Value Added Tax On Tourism (International business and economic research journal. Remittances. 10. Andrea gebauer. The Effectiveness of Electronic Tax Registers in Processing of Value Added Tax Returns (African Journal of Business & Management -AJBUMA Vol. Michael Keen and Ben Lockwood. 2010) 21. Benjamin A.2007) 15. Can Reform Models of Value Added Taxation stop the VAT Evasion and Revenue Shortfalls in the EU? (Journal of Economic Policy Reform Vol. Neil. European Vat – General Principles (2007) 13. vol. The Reduced VAT Rate for Small Business in Croatia (Original scientific paper.23 11. 2009) 19.

Vol.N. Macroeconomic Effects of VAT in India (Finance India.24 22. Rawat Deepa Agarwal. Dr. Jun2010. p493-504) 23. 24 Issue 2. Rao. Kalpna Agarwal And Gunjan. K. Value Added Tax Accounting: Concepts And Issues (Social Science Research Network. Shankaraiah and D. 2010) .

By 2000. . medicine. In recent years. such as a national sales tax.25 CHAPTER III THEORETICAL FRAMEWORK ABOUT VAT This chapter gives a theoretical background of VAT in general and in Tamil Nadu in particular. In fact. On the other hand. They also worry that it would increase the cost of food. such as labor and equipment. It is not a cost to the producer or the distribution chain member.VAT must be paid by every company that handle a product during its transition from raw materials to finished goods. a value is added whenever the value of a product increases as a result of the application of a company‟s factor of production. 3. opponents argue that VAT would be more complicated to implement than other tax-reform options. VAT has been proposed for use in the United States as a way to simplify business and personal income tax laws.1 Introduction of VAT The concept of VAT was first adopted by France in 1954. A Value Added Tax (VAT) is a fee that is assessed against business by a government at various points in the production of goods and services-usually any time a product is or value is added to it. Proponents claim that VAT would replace other forms of taxation and reduce the costs of tax compliance. and whereas it‟s full brunt is borne by the end consumer. It is an indirect tax on the domestic consumption of goods and services except those that are zero-rated (such as essential foods and drugs) or are otherwise exempt (such as exports). 3. In most cases. it was used by Canada and 40 other industrialized countries. so the tax on food would generally be less than the tax on luxury items like boats.2 Concept of VAT Value Added Tax is a consumption tax which is levied at each stage of production based on the value added to the product at the stage. which would hurt the poor. the percentage of tax charged varies based on the necessity of the particular product. and other necessities. For tax purposes. some people say that adopting VAT would eliminate tax returns for individuals and make the internal revenue service obsolete. it avoids the double taxation (tax on tax) of a direct sales tax. It is levied at each stage in the chain of production and distribution from raw materials to the final sale based on the value (price) added at each stage.

500 to its value in terms of labor.1. VAT would be calculated as a percentage of the Rs. envisages an increase in the number of dealers and it is based on the concept of self-assessment and self-compliance. It promotes transparency. With VAT. the total VAT accrued during the production of goods is reflected in the price of items sold to final consumers. inevitable that the sales tax department transforms itself into a dealer friendly. depreciation of knitting mechanics. An expert claims that VAT entails higher administrative costs but is easier to enforce than a national sales tax. then sells the complete shocks forRs. In this way. focused and dynamic department to cater to ever increasing expectations of both the government and the trade and industry. Of course. As an example. the shock company would also get credit for the amount of VAT it paid on the purchase of inputs. because each reseller along the way usually passes along its VAT costs. is both dealer friendly and consumer friendly. say that a company that makes shocks buys cotton yarns for Rs. VAT is being a multi point tax. In general. Sales tax department has taken up the challenge to transform their selves and be available for assisting the dealers in complying with the provisions of the law. They are in the process of installing a state-wide networked IT system to computerize entire tax administration and hope to provide online service to the dealers in due course. It is therefore. adds Rs.000. VAT is somewhat similar to a national sales tax.26 For example. compliance and equity and therefore. like cotton yarn. They also are realigning their organizational structure to meet the challenges of the new system and stakeholders‟ expectations‟. the taxable amount is based on the value added at each stage of the process of producing goods and bringing them to market. VAT is a progressive and transparent system of taxation which eliminates the cascading impact of multiple taxation and set-off principle.500 value added by turning cotton yarn into shocks. and profits. tax is charged when a manufacturer sells to wholesaler and again a wholesaler sells to a retailer. and the two forms of taxation are often compared by governments.1.500. .

in fact. Many sections hold the view that the trading community has been amongst the biggest offenders when it comes to evading taxes. It has held its meeting on 18th June 2004 in which it has unanimously decided that Value Added Tax system would be introduced in all states and union territories with effect from the 1st April 2005(1). In the conference of Chief Ministers of all the states held in November 1999. particularly the trading community. At a macro level. Under the VAT system. It has a baggage full of benefits. 3. They will also be compelled to keep proper records of their sales and purchases.4 Advantages of VAT Since ages always a reform is made for the benefit in the process of development.at 10 per cent of the GDP. Few advantages of VAT in India are mentioned below. if enforced properly. in its semi-annual World Economic Outlook released on April 9. there are two issues. . Let India not experience the same with VAT. it will close avenues for traders and businessmen to evade paying taxes. the Government of India constituted an empowered committee of State finance ministers in order to monitor the implementation of decision. Further any globally accepted tax administrative system will only help India integrate better in the World Trade Organisation regime. no exemptions will be given and a tax will be levied at each stage of manufacture of a product. help address the fiscal deficit problem and the revenues estimated to be collected could actually mean lowering of the fiscal deficit burden for the government. it was agreed that all the states and union territories may implement the Value added tax (VAT). has believed in accepting and adopting loopholes in any system administered by the state or the Centre. At each stage of value-addition. The empowered committee has agreed the broad structure and key features of the legislation on Value Added Tax. The International Monetary Fund (IMF). which make the introduction of VAT critical for India. the tax levied on the inputs can be claimed back from the tax authorities. If a well-administered system comes in. Industry watchers say that the VAT system. It was Chanakya who first wrote that a government should tax its people like a shepherd shears his flock or a bee gets nectar from a flower. But apparently that fiscal wisdom died with him. As a result.27 3. expressed its concern over India's large fiscal deficit . It could. forms part of the fiscal consolidation strategy for the country.3 Necessity of VAT in India India.

tax will be lost only on their margins because customers that are registered firms gain nothing if their suppliers fail to collect tax. One particular advantage is that of the widening of the tax base by bringing all transactions into the tax net. such as wholesalers or retailers. Cross audit is possible with any form of sales tax. If retailers do evade.28 (i) Coverage If the tax is carried through the retail level. under VAT. Under a retail sales tax. since the deduction system ensures that buyers at earlier stages will be refunded the taxes on their purchases. while if evasion takes place at the final stage the state will lose only the tax on the value added at that point. . under VAT it is only buyers at the final stage who have an interest in undervaluing their purchases. both seller and customer gain by evading tax. Tax charged by one firm is reported as a deduction by the firms buying from it. at the same time the direct payment of the tax is spread out and over a large number of firms instead of being concentrated on particular groups. and even if it is not picked up subsequently. (ii) Revenue security VAT represents an important instrument against tax evasion and is superior to a business tax or a sales tax from the point of view of revenue security for three reasons. VAT gives the new government the opportunity to bring back into the tax system all those persons and entities who were given tax exemptions in one form or another by the previous regime. but the tax-credit feature emphasises and simplifies it and is likely to make firms more careful not to evade because they know of the possibility of cross check. except delay in payment. they will pay more to the government themselves. all the taxes due on the product are lost to the government. if payment of tax is successfully avoided at one stage nothing will be lost if it is picked up at a later stage. on the other hand. Specifically. Under other forms of sales tax. Therefore. the government will at least have collected the VAT paid at stages previous to that at which the tax was avoided. Secondly. retailer and consumer have a mutual interest in under declaring the actual purchase price. If evasion takes place under a sales tax. it offers all the economic advantages of a tax that includes the entire retail price within its scope. A significant advantage of the value added form in any country is the cross-audit feature. on the other hand. tax losses due to undervaluation should be limited to the value added at the last stage. Only on the final sale to the consumer there is no possibility of cross audit. In the first place.

In any case VAT recognises and makes room for progressivity by applying no or low rates of tax on essential items such as food. It is interesting to note that when Trinidad and Tobago set out to introduce VAT it chose one of its top income tax administrators as the VAT Commissioner. The operation of a VAT resembles that of the income tax more than that of other taxes. clothes and medicine. In addition the VAT does not burden capital goods because the consumption-type VAT provides a full credit for the tax included in purchases of capital goods. Further. it simply eliminates the tax that has been imposed on (iv) Co-ordination of VAT with direct taxation Most taxpayers cheat on their sales not to evade VAT but to evade personal and corporate income taxes. and an effective VAT greatly aids income tax administration and revenue collection.5 Disadvantages of VAT The main disadvantages which have been identified in connection with the Value Added Tax are: (i) VAT is regressive It is claimed that the tax is regressive. This does not seem to be a bad idea at all. although this can create problems for administration and open opportunities for evasion by way of deliberate misclassification. However. progressive rates. It must be them. and in the case of income tax act as a disincentive to effort.e. stressed once again that if properly implemented VAT can ultimately lead to a reduction in overall rates of tax. Revenues will not be sacrificed but would in fact be enhanced as a consequence of the broadened tax base. . a problem incidentally not peculiar to VAT. In addition it allows for steep rates of tax on luxury items. The credit does not subsidize the purchase of capital goods. its burden falls disproportionately on the poor since the poor are likely to spend more of their income than the relatively rich person. and which takes place extensively in the area of customs duties.29 (iii) Selectivity VAT may be selectively applied to specific goods or business entities. i. particularly if it attempts to replace direct or indirect taxes with steep. observation from around the world has shown that steep tax rates lead to evasion. 3. there is now a tendency in most countries to reduce this progressivity of taxes. There is merit in this argument.

In addition. to justify deductions) are likely to prove serious. purchase tax and excise duties replaced by VAT had its own rate structure as well as a different tax base and separate administrative procedure. Each of the previous indirect taxes such as customs duties. and administration of the indirect tax system. However. without exception is required to maintain detailed and extensive records of all its transactions. tax base. small businesses have to be granted special treatment because of their inability to cope with the requirements of keeping adequate records which larger enterprises can handle at a reasonable cost. As noted before. Under any form of sales taxation. However. the abolition of a number of alternative indirect taxes releases experienced personnel to focus on a single tax. to the typical smaller firms the complexities of the tax and the need for more extensive records (for example. legislation to be applied and returns and accounts with which the business person has to contend. (b)Business It is true that the VAT is collected from a larger number of firms than under any form of income tax or single state sales tax. Compliance with this will certainly ensure compliance with VAT regulations. it is often overlooked that businesses already function with considerable administrative responsibility for a number of laws including the National Insurance Act and the Income Tax Act. and since there is an actual benefit to be derived from accounting for VAT paid on input there is an incentive for proper record-keeping. (a) The administration It is often argued that VAT places a special burden on tax administration. it is worth noting that wherever VAT was introduced one of its effects was the rationalisation and simplification of the previous indirect tax system and its administration. VAT also allows for the exemption of small businesses from the system. thereby eliminating the overlapping auditing practices that had plagued those systems.30 (ii) VAT is too difficult to operate from the position of both the administration and business. but not the taxes that normally . The intent of the special treatment is to reduce the administrative burden on small enterprises. Under the Income Tax (Accounts and Records) Regulations of 1980 every person. The consolidation and incorporation of numerous indirect taxes into the VAT would simplify the rate structure. It also means reduction in the number of forms used.

31 would be charged on the goods and services they supply. This is a real problem for labour-intensive economies and industries. (c) VAT is inflationary Some businessmen seize almost any opportunity to raise prices. The revenue loss at the final link in the commercial cycle is limited only to the value added at that stage. Out of 550 goods brought under the VAT. met 90 times to evolve a consensus on the new tax system. whereas in the case of income tax or sales tax the entire tax is lost.1 VAT would not have cascading effect The decision to introduce VAT was taken by the committee comprising finance ministers of 28 states and two union territories.6 Some reflections on VAT 3. Recalling the effects made by the centre since 1994 on the VAT. any price increases may be offset by increases in take-home pay. 270 would incur a mere 4 percent tax and the rest would fall under the general VAT rate of 12. In any case. In the larger businesses with proper staff and computers. 5lakhs would be exempted from tax. and the introduction of VAT certainly offers such an opportunity. including 10 items flexibly chosen by the states. a flat tax on turnover may be applied. the task is really one of double entry bookkeeping and any additional work is hardly ever noticed. To recover the loss from exemptions. the committee. a careful setting of the rate of VAT and the significance of the taxes they replace should generally ensure that there is no increase if any in the cost of living. . However. were exempted. any price consequence is one time only and prices should stabilise thereafter. he said. set up in November 1999.intensive competitor. Around 46 commodities that had social implications. To the extent that they lead to a reduction in income tax. since the ratio of value added to selling price is greater for the former.5 percent.6. Problems that came up while implementing the VAT would be looked at by the committee with an open mind. (d) VAT favours the capital intensive firm It is also argued that VAT places a heavy direct impact of tax on the labour-intensive firm compared to the capital. 3. It would not have a cascading effect and was devoid stringent penal provisions. The advantage of VAT would become clear when compared with the multi-point sales tax. Small dealers with an annual gross turnover not exceeding Rs. temporary price controls.

2 Higher Economic Growth Highlighting the importance of the VAT.3 VAT Effect on Inflation In considering the introduction of VAT. traders. In this regard VAT may be said to be superior tax in promoting economic growth than income tax.32 3. To guard against any unforeseen price effects the authorities may consider a tighter monetary policy stands at the introduction of VAT (3). rationalisation of the overall tax burden. as it provided for a set set-off for input tax as well as tax paid on previous purchases. Hence a uniform VAT rate falls heavily on the . In cases where there was an effect it was a onetime effect that simply shifted the trend line of the consumer price index (CPI). enhanced transparency and higher revenue growth (2). self-assessment by dealers. 3.Dasgupta said it would help consumers. Compared to other broadly based taxes such as income tax VAT is neutral with respect to choices on whether to consume now or save for future consumption. Although VAT reduces the absolute return on savings it does not reduce the net rate of return on saving. reduction in prices. its effects on investment can be said to be a neutral. by increasing their costs. Economic growth can be facilitated through investment by both government and the private sector. This emanates from the facts that consumption as a share of income falls as income rises. surcharge and additional surcharge.6.6. countries are often concerned that it would cause an inflationary spiral. Savings by both parties are required in order to finance investment in a noninflationary manner. 3. Since VAT does not influence investment decisions on firms. Income tax reduces the net rate of return as both the amount saved as well as the return on that saving are subject to tax.6. Dr. industrialists and the government. However there is no evidence to suggest that this is true.4 Distribution Effects of VAT Value added tax is widely criticised as being regressive with respect to income that is its burden falls heavily on the poor a on rich. abolition of turn over tax. A survey of OECD countries that introduced VAT indicated that VAT had little or no effect on prices.

However if. A proportional burden would also be demonstrated if lifetime income rather than current income is used. In order to address the regressive nature of VAT the following measures can be taken:  The VAT itself can be used to differentiate taxation of consumer items are consumed primarily by the poor such that they pay less or at zero rate or to luxury goods at a higher than standard rate.  Equity concerns may also be addressed through other ways. A lifetime income concept considers the fact that many income recipients are only temporally at lower income brackets as their earnings increase. which are usually unable to keep separate records/accounts for sales of differently taxed items. .  VAT exemptions may also be granted on goods and services that are consumed mostly by the poor. The use of multiple rates of VAT has however been widely discouraged for various reasons. outside the VAT system.g. This criticism is valid when VAT payments are expressed as a proportion of current income. consumption is used as the denominator the impact of VAT would be proportional.33 poor a rich. This results in the use of presumptive methods of determining the tax liability. Thus any concession extended may tend to benefit the rich much more then the poor. following the premise that welfare is demonstrated by the level of consumption rather than income.  Significantly increased costs of tax compliance for small firms.  The fact that sometimes it is almost impossible to differentiate between higher quality expensive products-e.  Increased costs of VAT administration as a differentiated rate structure brings with it problems of delineating products and interpreting the rules on which rate to use. such as other tax and spending instruments of government. This could be in the form of lower basic income tax rates on the poor or some pro-poor expenditure of government. which leads to more difficulties in monitoring the compliance. consumed by the rich and ordinary products consumed by the poor. food.

3. distribution effects are perhaps better addressed by other forms of tax and government expenditure policies which can often be better targeted at these aims. The rationale behind exemptions is to reduce negative distributional effects on incomes. If exemptions are granted at prior to final sale.  Un-recovered taxation of some intermediate goods may lead to procedures substituting away such inputs thus distorting the input choices of the said procedures. Given the fact that the primary purpose of VAT is to raise government revenue in an efficient manner and with as little distortions of economic activity as possible. in practice VAT is likely to generate more revenue for government a sales tax since it is administered on various stages on the production- .  Exemptions tend to feed on each other giving rise to a phenomenon called “exemption creep”.34  The higher compliance cost resultant from differentiation of VAT rates may also be regressive with respect to income since smaller firms with lower income tend to bear proportionately more of the burden a do larger firm.6. it results in a loss of revenue since value added at the final stage escapes tax.  For example creating an exemption to reduce the tax burden on a particular commodity or goods may lead to increased pressure for exemption or zero rating of inputs used for the production of such a commodity.5 VAT exemptions Exemptions refer to situations where output is not taxed but taxes paid on inputs are not recoverable.e.  Exemptions may create incentives to “self supply” i.  Based on the above. tax avoidance by vertical integration. The effect exemption may also be as follows:  Falling of revenues-exemptions break the VAT chain.7 Why VAT is preferred over Sales Tax While theoretically the amount of revenue collected through VAT is equivalent to sales tax collections at a similar rate. it is important that care is taken when introducing exemptions in order to avoid distortions in the production process as well as to minimise revenue loss resulting from such distortions. This arises from the fact that each gives rise to pressures on further exemption. 3.

This is made possible by the fact that one person‟s output is another‟s input. This is not the case with VAT. However. To cover the high administration costs. Sales tax is often applied again to the sales tax element of the cost. Thus the concept of zero VAT rate on some items has been introduced (4). with VAT some revenue would have been collected through taxation of earlier transactions. Not withstanding the advantages mentioned above.35 distribution chain. The equity impact of the relativity high rates have been a cause for concern as it is possible that the poor spend relatively high proportions of their incomes on goods subject to VAT. even if final retailers evade the tax net. which makes it a neutral tax as it provides the least disturbance to patterns of production and the generation and use of income. Only at consumption stage where there are no further transactions will there be no tax credits. VAT is also a fairer tax a sales tax as it minimises or eliminates the problem of tax cascading. It may be difficult to apply to small companies due to difficulties of record keeping and its coverage in agriculture and the services sector may be limited.distribution chain. it is worth that VAT is a considerably complex tax to administer compared with sales tax. . particular commodities may not yield any tax. thus there is a problem of tax on tax. At each intermediate stage credit will be given for tax paid on purchases to set against tax due on sales.g. VAT rates of 10-20 percent are generally recommended. which often occurs with sales tax. due to difficulty of covering all the retailers. Lack of input credit facility in sales tax often results in tax on inputs becoming a cost to business which are often passed on to consumers. In addition. These are facilitated by the fact that VAT operates through a credit system so that tax is only applied on value added at each stage in production. the tax audit trail that exists under the VAT system makes it a more effective tax in administration terms than sales tax as it helps with the verification of VAT amount declared as due. With sales tax. As with sales tax imports are treated the same way as local goods while exports are zero-rated to avoid anti-export bias. if final sales are not covered by the tax system e. There is also in-built pressure for compliance and auditing under VAT since it will be in the interest of all who pay taxes to ensure that their eligibility for tax credits can be demonstrated.

VAT has other advantages for both business and government. and as a result it offers a better financial system with less scope of error. VAT is levied on sale of goods including intangible goods. VAT is a modern and progressive taxation system which avoids double taxation. VAT in Tamil Nadu is levied under a legislation known as the Tamil Nadu Value Added Tax Act (TNVAT Act). It has an improved control. The design of Tamil Nadu State VAT is generally guided by the best international practices with regard to legal frame work. self-assessment system with more trust put on dealers.8 Background of VAT in Tamil Nadu Tamil Nadu is one of the 21 states which have introduced the Value Added Tax (VAT) system of taxation from 1st April 2007. On 1st April 2007. The consensus has been arrived at through the discussion in the empowerment committee of state finance ministers on implementation of state level VAT. With introduction of VAT. primarily that of double taxation. It is primarily a self-policing. It eliminates cascading impact of double taxation and promotes economic efficiency. mechanism resulting in better compliance. as well as operating procedures. It provides the potential for a stronger manufacturing base and more competitive export pricing.36 3. It is invoice based. Another key factor in preparation of the design of state level VAT is the national consensus on certain issues. . In addition to offering the possibility of a set-off tax paid on purchases. VAT replaced the single point tax which had a number of disadvantages. the sales tax department has moved to a globally recognized sales taxation system that has been adopted by more than 130 countries. supported by the Tamil Nadu Value Added Tax Rules (TNVAT Rules). It widens the tax base and promotes equity.

500 2.000 1.000 1. The tax is payable to the state government. another firm B buys the utensils in bulk from company A and polishes them.000 Net VAT amount to pay with the return (Note: Tax invoice issued by company A will show sale price as 50.9.1 How VAT works When a dealer sell goods.000/@5% Loss set off (Input Tax Credit) (2. Example The following shows how the VAT works through the chain from manufacturer to retailer. The tax payable on sales is to be calculated on the selling price.37 3.500) 5.9 Explaining the VAT procedure in Tamil Nadu 3.500 VAT @5%(in Rs) .1.50.000 7.50. packages them and sells the packed utensils for the public. Company A buys iron ore and other consumables and manufactures stainless steels utensils. shopkeeper C buys some of utensils and purchases packing. The tax paid on purchases supported by a valid tax invoice is generally available as set-off (input tax credit) while discharging the tax liability on sales. the selling price of goods and tax on the sale.00. material from vendor D. the sale price is made up of two elements. (The sale and purchase figures shown in the example are excluding tax) Particulars Amount (in Rs) Company A Cost of iron ore and consumables Sale of unpolished stainless steel utensils Value added Company A liable to pay VAT on Rs.

000 1.000 9.000+Rs250 of packing Material) Net VAT amount to pay with the return 2.25.500/-) Firm B Purchases unpolished stainless steel utensils Sells polished stainless steel utensils Value added The firm B is liable to pay VAT on Rs.7.50.000 11.500) 1. the total invoice value will be Rs.000 5. 1.80.250 1.000 @5% But can claim set off tax paid on purchases Net VAT amount to pay with the return Shop keeper C Purchases polished stainless steel utensils Packing material Total purchases Sales Value added Shop keeper C is liable to pay VAT on Rs.38 Rs.000 1.1.25.tax as Rs.1.80.000 2.000 30.000/.500/-.000/@5% Set off of tax paid on purchases (Rs.9.500 Vendor D .000 40.85.80.50.57.2.250 1.000 9. Therefore.000 (7.

000 1. the cascading impact of tax is totally eliminated. the tax is finally borne by the ultimate consumer.000 5..5% on Rs.2. .500 2. In practice.5.500 5.000/- 11.e.250 Thus.000 250 The VAT due on the Value Added through the Chain. importers. Since set-off of tax on purchases is given only on purchases from registered dealers. 2.000/. who is not a registered dealer.25.39 Tax paid costs Sales Value added Vendor D is liable to pay VAT on Rs. i. inter-state purchases and purchases from registered dealers without separate tax collection are not entitled to set-off.250 The state government received the tax in stages. in this case.000 250 11. through a chain of tax on sale price and set off on purchase price. people who buy utensils from the shopkeeper C. The payments of tax were as follows: Particulars Suppliers of company A Company A Firm B Shopkeeper C Vendor D Total Amount in Rs.@5% Nil 5.

Raw materials. eggs. (i.2 Rates of Value Added Tax Old VAT rates: (till 11th July 2011) There are two main rates of VAT 4% and 12. milk. The goods are grouped into four schedules as under: Schedule Rate of tax A 0% Vegetables. notified information technology products and few essential items D 12. milk.40 3. New VAT rates: (from 11th July 2011) There are two main rates of VAT 5% and 14. bread and candles etc. The goods are grouped into four schedules as under: Schedule Rate of tax Illustrative items A 0% Vegetables.e. exempted goods form VAT) B 1% Precious metals and precious stones and worn-out or beaten jewellery C 4% Agriculture implements not operated manually or not driven by animal. (i.5% Other than items specified in schedules A. exempted goods form VAT) B 1% Precious metals and precious stones and worn-out or beaten jewellery .5%. bread and candles etc.B and C. eggs.5%.e. notified industrial Illustrative items inputs.9.

41

C

5%

Agriculture implements not operated manually or not driven by animal, Raw materials, notified industrial inputs, notified

information technology products and few essential items D 14.5% Other than items specified in schedules A,B and C.

3.9.3 Calculating Tax Liability In, order to calculate how much tax a dealer has to pay, he must, first determine his turnover of sales and turnover of purchases. The second stage is to ascertain the amount of tax due for payment. Calculation of turnover and purchases The turnover of sales is the total of the amounts received or receivables (excluding VAT charged separately) in respect, of the sale of goods, less the amount refunded, within six months of the date of the sale. Similarly, the turnover of purchase is the total number of the amounts paid or payable (excluding VAT charged separately) in respect of the purchase of goods less (the amount repaid in respect of goods they return) within six months of date of purchase. Credit notes and debit notes If the sale price, or the purchase price, of any goods is varied and either a credit note or a debit note is issued, then the credit note or the debit note, as the case may be, should Show separately, the tax and the price Be accounted for in the period in which the appropriate entries are made in their books of accounts.

Special Cases
Auctioneers If dealer is an auctioneer, then they must include in their turnover, the price of the goods they auction for their principal.

42

Hotels There are special rules for hotels and other establishments that provide boarding and lodging for an inclusive amount. The rules provide a formula to enable them calculate their turnover of sales for meals (food and beverages) which they provide. The supply of food in a restaurant also includes an element of service. But the full amount charged is the sale price for the purposes of calculating turnover and tax. Work contracts VAT applies only to the sale of goods. Supply of services is not liable to VAT. Works contracts are deemed sales where both, goods and services are provided in a transaction and cannot be separated. A works contract may involve the creation of immovable property, e.g. house, a factory or a bridge. Some other examples of works contracts are photography, repairs and maintenance etc. To calculate the amount a dealer should include in their sales, so that they may deduct it from the total contract price, the Costs of labour and service charges. Amount paid to sub-contractors. Charges for planning and designing, and any architect‟s fees. Hiring charges for machinery and tools. Cost of consumables, such as, water, gas and electricity. Dealer‟s administrative costs relating to labour and services and any other similar expenses. Any profit element that relates to the supply of labour and services. Alternatively, in lieu of the deductions as above, a dealer may choose to discharge the liability arising on works contracts by referring to the table prescribed in the rules. If the dealer finds that it is too complicated to calculate that deductions, then they may option for a composition scheme for any works contract. 3.9.4 Difference between tax free goods and exempted goods It is sometimes confusing to have goods that are tax free and sales that are exempt. Both result in reduction on VAT being charged, so what is the difference. Tax free goods do not attract tax at any stage of sale or in any type of transaction, whereas, exempted sales are certain types of transactions, viz., export sales which are exempt from tax.

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3.9.5 Records and Accounts Keeping records Proper records are an essential part of effective management and control of their business. Dealers are required by law to keep a true and accurate account of the transactions effected by them. This will also help them to correctly quantify their tax liability or refunds, as the case may be. Thus dealers should keep all their accounts, registers and documents relating to their stocks of goods, purchases, sales and deliveries of goods, at their place of business. If they wish to keep them at a different location they may do so, but only if they have the permission of the commissioner of sales tax. Nature of Records Normally, the department will not expect them to keep any special records for VAT purposes. However, the records that they do keep should have sufficient details to enable them to correctly calculate the amount of VAT due for payment and file their return. If sales tax office happens to find that their records are not properly maintained, then they will issue a notice, informing dealers about what records they must keep. A dealer should maintain the following records  To identify the nature and value of goods purchased and sold;  Distinguish between:Local sales, interstate sales and exports. Local purchases, interstate purchase and imports.  Indicate value of:Sale and purchase of tax free goods. Sales exempted from tax. Purchases from Un Registered Dealer Rate-wise purchases and sales. Local purchases from registered dealer with VAT shown separately.  Record payments for the purchases and sale of goods in cash book/ bank book.  Include a summary of VAT paid separately on purchases, VAT charged on sales, VAT paid to the state treasury and VAT refundable/refunded to the dealers.  Contain adequate proof that goods have been exported or imported.

issued for goods sold. Rate and amount of tax charged and indicated separately. The name and address of the purchaser. if a dealer is a composition dealer other than a works contractor. However.44  Be supported by invoices for all goods purchased. Description of goods. Serial number of the bill/ cash memorandum. address and registration number (TIN). If a dealer issues a bill or cash memorandum. they should issue a tax invoice when they sell goods to another registered dealer and charge VAT. If a dealer is „a composition dealer (other than works contractor) then the word composition dealer at the top of the bill/ cash memorandum. printed in bold letters at the top or at a prominent place. the quantity and price of the goods sold. For sales made to consumers and unregistered dealers.9. or a bill or cash memorandum. And it must also sign either by dealer or by someone who is authorized by the dealer. they must issue a bill or cash memorandum only and not a tax invoice or a bill or cash memorandum. Date of the issue. and copies of invoices. Serial number of the invoice. it must contain:Words „bill/cash memorandum‟. The name. . address and the registration number of the purchaser. Dealers name. Prescribed declaration regarding validity of the registration and payment of tax. Tax invoice must contain The words “tax invoice”. Date of issue. Dealer name . and bills or cash memoranda. address and registration number (TIN). 3. they must issue a tax invoice. printed in bold letters at the top or at a prominent place.6 Tax Invoices and Memoranda of Sales or Purchases As a registered dealer.

With introduction of VAT. 3. Prescribed declaration regarding validity of the registration and payment of tax. VAT would.45 Description of good. and the next seller pays tax only on the value-addition done . for goods that are imported and consumed in a particular state. the quantity and price of the goods sold. the value added tax system has been adopted by different nations across the world.leading to a total tax burden exactly equal to the last point tax. be collected in stages (instalments) from one stage to another. Tamil Nadu is one of the 21 states in India which has introduced the Value Added Tax (VAT) system of taxation from 1st April 2007. . In Tamil Nadu VAT has been introduced in 2007 and has been successfully implemented since then. VAT is intended to be levied-or charged-whenever there is some value addition to raw material. Not surprisingly. the sales tax department has moved to a globally recognized sales taxation system that has been adopted by more than 130 countries. The mechanism of VAT is such that. however. It must sign either by dealer or by someone who is authorized by the dealer. due to the ease of payment and ready comprehensibility.10 Conclusion India already has a system of sales tax collection wherein the tax is collected at one point (first/last) from the transactions involving the sale of goods. the first seller pays the first point tax.

46 REFERENCES: 1.C “Adoption of State Value Added Tax in India: Problems and Prospectus”.2008/state_rule_vat_rate_hike_for_nov_.com/taxation/necessity_of_vat_in_india. www.caindia.org/news/4.html 3.html 2. Economic and Political Weekly.M. .org/ctp/vatguidelines 4. http://www.oecd. http://finance. Purohit.indiamart.

9%).1 150 100 50 0 Male Female Interpretation Among the 130 respondents Table # 4.47 CHAPTER IV DATA ANALYSIS AND INTERPRETATION This chapter analysis the data collected from 130 VAT payers and 130 VAT officials.1 16. .1 Table Showing the Gender of the Respondents Gender Male Female Total Frequency 108 22 130 Percent 83.0 (Source: Primary Data collected from business firms i.9 100.e.1 shows 108 respondents are male (83. VAT Payers) The above data are presented diagrammatically in Fig # 4. analyzed and the results are furnished in the following tables: 4.1%) and 22 are female respondents (16. The collected data are processed.1 ANALYSIS OF DEMOGRAPHIC VARIABLES OF VAT PAYERS Table #4.

0 (Source: Primary Data collected from business firms i.5%).48 Table # 4.7 0. i. . Young Entrepreneurs. Thus 74% of respondents are in the age group of 20 to 29 years. and 4 in the age group of above 50 years. 23 in the age group of 40 to 49 years (17.8 2.2 it can be seen that 1 respondent is in the age group of below 19 years. 28 in the age group of 30 to 39 years (21.5 17.3 100.9 21.7%).8 56. 74 in the age group of 20 to 29 years (56.e.9%). VAT payers) The above data are presented diagrammatically in Fig # 4.2 80 70 60 50 40 30 20 10 0 Up to 19 years 20 to 29 years 30 to 39 years 40 to 49 years 50 to 59 years Above 60 years Interpretation Table # 4.e.2 Table Showing the Age Group of Respondents Age Group Up to 19 years 20 to 29 years 30 to 39 years 40 to 49 years 50 to 59 years Above 60 years Total Frequency 1 74 28 23 1 3 130 Percent 0.

3 Marital status 80 70 60 50 40 30 20 10 0 0 0.9% of respondents are in the age group of 20 to 29 years.3 Table Showing Marital Status of Respondents Marital Status Single Married Total Frequency 55 75 130 Percent 42.7 100.3 shows that 43. VAT payers) The above data are presented diagrammatically in Fig # 4.e.49 Table # 4.5 1 1.3 57.5 Single. 75 Interpretation Table # 4.0 (Source: Primary Data collected from business firms i. This tallies with the age group profile that 56. .3% of respondents are unmarried and 57. 55 Married.5 2 2.7% are married.

Thus the majority respondents are graduates and post graduates (52.2% are post graduates.7 43.e. 37. .4 Education Others Professional Degree Post Graduate Graduate Up to 12th std 0 10 20 30 40 50 60 Interpretation Among the 130 respondents 43.8 5.2 3. 9.4 100.9% are graduates.2%).8% are professional degree holders and 5.0 (Source: Primary Data collected from business firms i.4 Table Showing Educational Qualifications of Respondents Education Up to 12th std Graduate Post Graduate Professional Degree Others Total Frequency 49 57 12 5 7 130 Percent 37.9 9.7% are below 12th standard.50 Table # 4.4% come under the category of others. VAT payers) The above data are presented diagrammatically in Fig # 4. 3.

18 Hard ware. 10 Textile. 20 Electrical and Electronics Shop.1 13.0 (Source: Primary Data collected from business firms i. 8 Foot wear.51 Table # 4. VAT payers) The above data are presented diagrammatically in Fig # 4.5 Pharmacy Shop. 13 Others. 11 . 8 Jeweler Shop.5 13.6 6.7 6. 12 Automobile Shop. 6 Fancy Store.e.5 Table Showing the Type of Business of Respondents Type of Business Pharmacy Shop Provisional Store Electrical and Electronics Shop Fancy Store General Merchant Textile Foot wear Jeweler Shop Automobile Shop Hard ware Others Total Frequency 13 20 6 8 12 7 10 8 11 17 18 130 Percent 10. 7 General Merchant. 17 Provisional Store.2 5.4 7.2 8.2 9.4 4.0 15.8 100.

and pharmacy shop owners respectively.13 respondents are foot wear. VAT payers) The above data are presented diagrammatically in Fig # 4.3 5.6 50-60 Lakhs 40-50 Lakhs 30-40 Lakhs 20-30 Lakhs 10-20 Lakhs 1-10 Lakhs 0 10 20 30 40 50 60 Interpretation As per table # 4. Thus the VAT payers do a variety of business and not concentrated on as single business. Table # 4.0 8.10 to 20 lakhs.e.40-50 lakhs.2 23.6 Table Showing Annual Turnover of Respondents Annual Turnover 1-10 Lakhs 10-20 Lakhs 20-30 Lakhs 30-40 Lakhs 40-50 Lakhs 50-60 Lakhs Total Frequency 60 30 11 6 16 7 130 Percent 46.11. and 7 .12. 30 respondents turnover is from Rs.4 100.5 revels 20 respondents are provisional store owners. automobile shop.1-10 lakhs. 10. general merchant.52 Interpretation Table # 4.6 12.6. 17 respondents are hard ware owners. 16 respondents turnover is Rs.0 (Source: Primary Data collected from business firms i.5 4. 60 out of 130 respondents annual turnover is Rs.

Table # 4.50-60 lakhs.8 30. .7 Table Showing Respondents’ Business Age Age 0-5 Years 5-10 Years 10-15 Years 15-20 years More than 20 Years Total Frequency 53 39 16 19 3 130 Percent 40.7 0-5 Years 5-10 Years 10-15 Years 15-20 years More than 20 Years Interpretation Table # 4.3 100.2% of respondents are small traders with an annual turnover falling in the range of Rs. 19 respondents for 15-20 years. VAT payers) The above data are presented diagrammatically in Fig # 4.3 14.53 respondents turnover is Rs.7 shows 53 respondents are doing business for 0-5 years.6 2.e. 46. Thus out of 130 respondents nearly 41% of respondents are relatively new to business world.1-10 lakhs.0 (Source: Primary Data collected from business firms i. 39 respondents for 5-10 years.0 12. 16 respondents for 10-15 years and only 3 respondents out of 130 are doing business for more than 20 years.

60 Male Male.8% of respondents are male i.e.54 4.46.0 (Source: Primary Data collected from VAT officials and consultants) The above data are presented diagrammatically in Fig # 4.2%.e.8 46.2 ANALYSIS OF DEMOGRAPHIC VARIABLES OF VAT OFFICIALS Table # 4.8 Gender Female Female.70 respondents and 60 of 130 respondents are female i.8 Table Showing Gender Status of Respondents Gender Male Female Total Frequency 70 60 130 Percent 53. Thus major portion of respondents are male members.2 100. . 70 55 60 65 70 75 Interpretation Out of the 130 respondents 53.

5 27.9 shows that nearly 15% of respondents are young officials falling in the age group of 20-29 years.0 (Source: Primary Data collected from VAT officials and consultants) The above data are presented diagrammatically in Fig # 4.9 Table Showing Age Group of Respondents Age Group 20-29 Years 30-39 Years 40-49 Years 50-59 Years Total Frequency 19 37 36 38 130 Percent 14.6 28.2 100.9 50-59 Years 40-49 Years 30-39 Years 20-29 Years 0 5 10 15 20 25 30 35 40 Interpretation Table # 4. .55 Table # 4. 56% of them are middle aged officials falling in the age group of 30-49 years and 29% of the respondents are senior officials in the age group of 50-59 years.7 29.

.10 Table Showing Marital Status of Respondents Marital Status Single Married Total Frequency 19 111 130 Percent 14.4%).56 Table # 4.4 100.e.10 Marital status 120 100 80 60 40 20 0 Single Married 19 111 Interpretation The majority respondents are married i.0 (Source: Primary Data collected from VAT officials and consultants) The above data are presented diagrammatically in Fig # 4. 111 out of 130 (85.6 85.

7%) are graduates.11 Up to 12th STD Graduate Post Graduate Professionals Others Interpretation Table # 4.7 22.6 3.47. Only 22% of respondents have an educational qualification up to 12th standard.3 4.11 Table Showing Education Level of Respondents Education Up to 12th STD Graduate Post Graduate Professionals Others Total Frequency 29 62 29 6 4 130 Percent 22.57 Table # 4.3 47.0 (Source: Primary Data collected from VAT officials and consultants) The above data presented diagrammatically in Fig # 4.11 reveals that 62 respondents out of 130 (i. These respondents belong to clerical cadre and also include assistants to tax consultants.e.1 100. .

9 Professional Carde Assistant Commissioner Commercial Tax Officer. 21 Tax Analyst. 42 Assistant Commissioner.2 13.12 Table Showing Respondents Designation Designation Professional Cadre Assistant Commissioner Commercial Tax Officer Assistant Commercial Tax Officer Tax Analyst Total Frequency 9 21 17 42 41 130 Percent 6.5 100.0 (Source: Primary Data collected from VAT officials and consultants) The above data are presented diagrammatically in Fig # 4.1 32. 41 respondents are tax consultants. 17 Commercial Tax Assistant Officer Commercial Tax Officer Tax Analyst Interpretation 42 respondents out of 130 are Assistant Commercial Tax Officers.58 Table # 4. .9 16. Hence the majority respondents among VAT administrators are Assistant Commercial Tax Officers.12 Designation 45 40 35 30 25 20 15 10 5 0 Assistant Commercial Tax Officer. 41 Professional Carde. 21are Assistant Commissioners and 17 respondents are Commercial Tax Officers.3 31.

13 shows 93% of respondents earn Rs.9 100. .0 (Source: Primary Data collected from VAT officials and consultants) The above data are presented diagrammatically in Fig # 4.59 Table # 4.13 Table Representing the Income of Respondents Income 1-4 Lakhs 4-8 Lakhs Total Frequency 121 9 130 Percent 93.1 6.13 140 120 100 80 60 40 20 0 1-4 Lakhs 4-8 Lakhs Interpretation Table # 4.4-8 lakhs per annum. and only 7% respondents earn Rs.1-4 lakhs per annum.

its associated probability is less than 0.219 Cumulative % 16.802 43.048 2. Table # 4. The KMO measures the sampling adequacy which should be greater than 0.224 24.674 9. Bartlett's Test of Sphericity Approx.810 . the overall MSA for the set of variables included in the analysis was 0.627.674 9.302 2 3.14(b) Total Variance Explained Initial Eigen values Extraction Sums of Squared Loadings % of Variance 21. it can be seen that the Bartlett's test of sphericity is significant.3 RESULT OF FACTOR ANALYSIS OF VAT OFFICIALS Factor analysis is used to reduce the number variables as one factor.000.Kaiser recommends the accepting value greater than 0. Values between 0. which satisfies this requirement.466 % of Variance 16.365 21.048 Rotation Sums of Squared Loadings Total 4.008 12.008 6.5 to 0. Since the KMO value is 0.810 21. That is.60 4.733 32.7 to 0. which exceeds the minimum requirement of 0. From the same table. Chi-Square Df Sig.802 3 2.14(a) KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy. Principal component analysis requires that the probability associated with Bartlett's Test of Sphericity be less than the level of significance.008 33. The probability associated with the Bartlett test is <0.50.683 3. In fact.508 8.867 2.8 to 0.14 (a) The Kaiser-Meyer-Olkin (KMO) and Bartlett's test.5 is acceptable.001.627 2.9 are superb.008 12.000 The table # 4.7 are mediocre.627 it shows the mediocre adequacy.365 Cumulative % 21. This means that the correlation matrix is not an identity matrix.8 are good.553 2. values between 0.224 8. it is actually . values between 0.05.5 for a satisfactory factor analysis to proceed. .952 % of Cumulative Component Total Variance % Total 1 6.683 43. In addition. Table # 4.9 are great and values above 0.434 435 .302 33.

the third 9.135 69.676 2.067 62.648 7.493 40.61 4 2.342 71.365%. The graph is useful for determining how many factors to retain. The point of interest is where the 10curve starts to flatten.039 10 11 12 13 . the second 12.174 2.464 50.674%.060 85.114 1.826 .158%.676 Extraction Method: Principal Component Analysis.065 7.487%.212 1. It can be seen that the curve begins to flatten between factors 9 and 10.277 2.753 2.473%.119 2. Notice that the first factor accounts for 21.473 4.487 4. so only nine factors have been retained .559 2.747 80.255 9 1. the seventh 4.847 6 1.464%. Table # 4.861 6.158 5. The latent root criterion for number of factors to derive would indicate that there were 9 components (factors) to be extracted for these variables. the sixth 5.692 7.070 62. and the cumulative variance of the factor and the previous factors. All the remaining factors are not significant.067 1. the forth 7.255 74.307 50. Using the output from iteration 9.501 83.921 .027 71.367 7.183 74. The scree plot figure # 4.008% of the variance.072 2.14 (b) reveals the factors extractable from the analysis along with their Eigen values.048 5. the cumulative proportion of variance criteria can be met with 9 components to satisfy the criterion of explaining 60% or more of the total variance. there were 9 Eigen values greater than 1. the fifth 6.909 57.487 4.861 6.158 5.768 . It may also be noted that factor 10 has an Eigen value of less than 1.14 is a graph of the Eigen values against all the factors.589 7.184 3.358 5 1.184 3.861%. our initial factor solution was based on the extraction of 9 components.646 7 1.473 4.284 7.847 62.0.646 67.825 55.358 57.554 1. In addition. the percent of variance attributable to each factor.676 1.554 67.039 77. Since the SPSS default is to extract the number of components indicated by the latent root criterion.185 2.245 7.464 3. the eighth 4.184% and ninth 3.342 8 1.027 1.909 2.212 74.540 47.

847 .663 2 3 4 5 6 7 8 9 .739 .761 .761 .14 Table # 4.62 Scree Plot figure # 4.14(c) Rotated Component Matrix Component 1 Economic Reform Convenient Mechanism Transparency Fiscal Responsibility Evolution .689 .

825 . From the table # 4. Registration.797 . the information in 30 of the variables can be represented by 9 components.596 .845 .743 . Convenient.754 .702 . Mechanism. Economic Reform. Transparency. Evolution.637 .557 .759 .586 . Component 1 includes the variables.515 .818 .636 .643 .637 . Fiscal Responsibility. Tax Loss.746 .748 . Rotation Method: Varimax with Kaiser Normalization. .513 Extraction Method: Principal Component Analysis. Collection and Coverage.812 .422 .63 Registration Revenue Security Tax Loss Good Economy Coverage Facilitate To VC Growth Procedures Conditions Work Burden Penalty System Lack Of Clarity Reduce A and E Educational Visit Bookkeeping Voluntary Compliance TIN Filing Return RVAT Appropriate System Uniform Tax Fraudulent Misconception Collection .746 . Revenue Security.14 (b) Rotated Component Matrix.615 . Good Economy.

Component 5 includes the variables.797 Penalty System .596 Work Burden Fraudulent .825 . Work Burden and Fraudulent.754 . TIN and Filing Return. Component 6 includes the variables. Component 4 includes the variables.847 Facilitate To VC . Facilitate To VC. Component 7 includes the variables.746 .739 Factor 4 .812 .637 Factor 3 . Appropriate System and Uniform Tax Component 9 includes the variables.761 Procedures .746 .64 Component 2 includes the variables. Misconception. Educational Visit.515 . Growth and Procedures.663 Conditions . Component 8 includes the variables. Table # 4.689 .761 Growth . Lack of Clarity and Penalty System.14(d) List of Factors Factor 1 Economic Reform convenient Mechanism Transparency Fiscal Responsibility Evolution Registration Factor 2 Tax Loss Good Economy coverage Factor 6 Factor 5 . Conditions.636 . Book Keeping and Voluntary Compliance.702 . RVAT.743 Lack Of Clarity Factor 7 .

65 Educational Visit Book Keeping Voluntary Compliance Factor 9 Misconception . .845 . The variables that load highly on factor 2 seem to all relate to profit nature. The variables that load highly on factor 7 seem to all relate to Tax payer Identification Number.586 .748 Appropriate System Uniform Tax . The variables that load highly on factor 6 seem to all relate to book keeping.14(d) the researcher identifies nine factors. Therefore the researcher may label this factor compulsory requirement.422 . So the researcher may label this factor convenience. The variables that load highly on factor 4 seem to all relate to conditions and work burden. The variables that load highly on factor 3 seem to all relate to growth and procedures. So the researcher may label this factor basic rule. Therefore the researcher may label this factor registration. The variables that load highly on factor 8 seem to all relate to appropriate system. When the researcher done factor analysis for 30 variables.818 TIN .643 Filing Return .14 (c). It denotes these variables are inter-correlated variables.615 From the table # 4. Finally only one variable shows one factor.637 Factor 8 RVAT . Hence the researcher may label this factor uniformity to the state. The variables that load highly on factor 5 seem to all relate to lack of clarity and penalty system. Therefore the researcher may label this factor profitability. so the researcher labels this factor misconception. Hence the researcher may label this factor procedure. it results in nine factors as shown in rotated component matrix table # 4. The researcher may label this factor penalty system.759 . The seven variables that load highly on factor 1 seem to all relate to convenience.

889 . .351 6. In fact.545 1.419 65.114 97.020 % of Cumulative Variance % 26.5 for a satisfactory factor analysis to proceed.880 15.993 3.863 89.245 % of Cumulative Variance % 26.664 15. The KMO measures the sampling adequacy which should be greater than 0.835 .121 94. Chi-Square df Sig.15(a) KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy.557 50.518 % of Cumulative Variance % 17.893 8.471 41.000 The table # 4.515.547 100.893 16. Table # 4.647 1. it can be seen that the Bartlett's test of sphericity is significant.183 17.020 . From the same table.893 34. This means that the correlation matrix is not an identity matrix.620 Rotation Sums of Squared Loadings Total 1.05.350 1.923 55.515 275. its associated probability is less than 0.495 10.620 74.923 55.495 10.471 41.437 65.471 15.626 .201 26.4 RESULT OF FACTOR ANALYSIS OF VAT PAYERS Table # 4.15(a) The Kaiser-Meyer-Olkin (KMO) and Bartlett's test.000.666 1. the overall MSA for the set of variables included in the analysis was 0.453 26.545 1. it is actually . That is.452 13.647 1.15(b) Total Variance Explained Extraction Sums of Squared Loadings Total 2.000 .471 15.588 1.257 4. Bartlett's Test of Sphericity Approx.452 13.350 1.620 Initial Eigen values Component 1 2 3 4 5 6 7 8 9 10 Total 2.789 1.499 . In addition.513 45 .343 .434 2.201 8.419 65.512 82.66 4.

67 Extraction Method: Principal Component Analysis.452%. and the cumulative variance of the factor and the previous factors.15 The scree plot is a graph of the Eigen values against all the factors. . Scree Plot figure # 4.15 (b).202%. The graph is useful for determining how many factors to retain. the second 15. It can be seen that the curve begins to flatten between factors 4 and 5. All the remaining factors are not significant. The point of interest is where the curve starts to flatten. third 13. Note also that factor 5 has an Eigen value of less than 1. The total variance explained table # 4. shows all the factors extractable from the analysis along with their Eigen values. the percent of variance attributable to each factor.495% and the fourth 10. so only four factors have been retained. It may be noticed that the first factor accounts for 26.647% of the variance.

688 . . Rotation Method: Varimax with Kaiser Normalization. The factors Incidence. it can be seen that simplicity and convenient are substantially loaded on Factor (Component) 4 while procedures and avoidance are substantially loaded on Factor 3.716 Convenient Convenience .833 Incidence . reduce the number factors on which the variables under investigation have high loadings.714 Evasion .745 .642 Regulations Procedures Avoidance .669 .68 Table # 4.714 .15(c) Rotated Component Matrix Component 1 Mechanism Tax payable Growth Incidence Evasion Work Burden Procedures Avoidance Simplicity Convenient Extraction Method: Principal Component Analysis.15 (c).745 Simplicity . All the remaining variables are substantially loaded on Factor 1.833 .15(d) List of Factors Assistance Mechanism Tax payable Growth Procedures .820 .669 .844 .716 .844 . Table # 4. Looking at the table below.688 2 3 4 The table # 4.820 .642 .670 .670 Work Burden . Rotation does not actually change anything but makes the interpretation of the analysis easier. evasion and Work burden are loaded in factor 2.

there is an evidence to reject the null hypothesis and conclude that the two attributes.calculated value is lesser than table value. The variables that load highly on factor 4 seem to all relate to simplicity. Therefore the researcher may label this factor procedure.954 130 df 3 (Source: Primary Data collected from VAT payers) *Significance at 5% level .008* Value Pearson Chi-Square N of Valid Cases 11. Sig. 4. the work burden of the respondents does not depend on the sex of such respondents.15(d) the researcher identifies 4 factors. Hence the researcher may label this factor regulation. The first three variables that load highly on factor 1 seem to all relate to help VAT payers. (2-sided) . sex and work burden are independent i. Therefore the researcher may label this factor convenience.69 From the table # 4. Since the probability value is 0.16 Gender * Work Burden Cross tabulation Chi-Square Tests Asymp. Table # 4. The variables that load highly on factor 3 seem to all relate to procedures. sex and work burden in case of filling VAT .15(c). H1: The attributes sex and work burden are dependent. When the researcher done factor analysis for 10 variables. It denotes these variables are inter-correlated variables. The variables that load highly on factor 2 seem to all relate to work burden and incidence.008 (p<0.5 RESULTS OF CHI SQUARE TEST RELATING TO VAT PAYERS This section gives the results of chi-square test as applied on VAT payer responses: Table # 4. H0: The attributes.16: To test whether the male and female respondents differ or do not differ about the work burden in case of VAT filling.e. So the researcher may label this factor Assistance. it results in 4 factors as shown in rotated component matrix table # 4.05).

Table # 4.18: To test whether the type of business and work burden differ or do not differ. (2-sided) . H1: There is a significant relation between the type of business organization and work burden of respondents. H0: There is no significant relation between education and work burden of respondents. Sig.05). Table # 4.17: To test whether the education and work burden differ or do not differ about the filling of VAT returns.calculated value is greater than table value.516* Value Pearson Chi-Square N of Valid Cases 11.516 (p>0. Hence there is no evidence to reject the null hypothesis and it is concluded that there is no significant relation between education and work burden of respondents.147 130 df 12 (Source: Primary Data collected from VAT payers) *Significance at 5% level . . H0: There is no significant relation between type of business organization and work burden of respondents.17 Education * Work Burden Cross Tabulation Chi-Square Tests Asymp. Therefore it is further concluded that work burden of the respondents depend on the sex of such respondents. H1: There is a significant relation between education and work burden of respondents. Table # 4.70 returns is dependent. As per the above chi square test results the probability value is 0.

there is a significant relation between the type of business organization and work burden.71 Table # 4. This shows that eleven business groups differ in their view about the work burden.187 130 Df 30 (Source: Primary Data collected from VAT payers) *Significance at 5% level .e.19 Turnover * Work Burden Cross tabulation Chi-Square Tests Asymp. Sig. there is an evidence to reject the null hypothesis and conclude that there is a significant influence of turnover over work burden of respondents.05).004* Value Pearson Chi-Square N of Valid Cases 54. (2-sided) . Therefore. H0: There is no significant influence of turnover on work burden of respondents H1: There is a significant influence of turnover on work burden of respondents Table # 4.18 Business * Work Burden Cross tabulation Chi. Table # 4. Since the probability value is 0. it is concluded that work burden of the respondents depend on the turnover of such respondents.19: To test whether the turnover of respondents influences or do not influence the work burden of respondents.017 (p<0. The chi square results show the calculated value as . (2-sided) .calculated value is lesser than table value.017* Value Pearson Chi-Square N of Valid Cases 28. i.square tests Asymp.004.calculated value is lesser than table value.05). .854 130 df 15 (Source: Primary Data collected from VAT payers) *Significance at 5% level . The probability value is lesser than the table value (p<0. Sig.

it is concluded that the incidence of tax is depending on the turnover of such respondents.calculated value is lesser than table value. H1: There is a significant relation between the age of business and incidence of tax.21: To test whether the age of business and incidence of tax differ or do not differ. (2-sided) . Table # 4.360 130 df 12 (Source: Primary Data collected from VAT payers) *Significance at 5% level . Therefore. Sig. Table # 4.21 Age of Business * Incidence Cross tabulation Chi-Square Tests Asymp.000* (Source: Primary Data collected from VAT payers) *Significance at 5% level . There is an evidence to reject the null hypothesis and conclude that there is significant difference between turnover and incidence of tax.05).72 Table # 4. .756* Value Pearson Chi-Square N of Valid Cases 8. H0: There is no significant relation between age of business and incidence of tax. Table # 4.calculated value is greater than table value. H0: There is no significant difference between the turnover and incidence of tax H1: There is a significant difference between the turnover and incidence of tax. (2-sided) .20: To test whether the turnover of respondents influence or do not influence the incidence of tax of respondents.000 (p<0.20 Turnover * Incidence Cross tabulation Chi-Square Tests Value Pearson Chi-Square N of Valid Cases 58. Sig.226 130 df 15 Asymp. The probability value of above chi square table is 0.

I.026* Value Pearson Chi-Square N of Valid Cases 17. 4.05).416 130 df 8 (Source: Primary Data collected from VAT payers) *Significance at 5% level . The chi square table probability value is 0. .6 RESULTS OF CHI SQUARE TEST RELATING TO VAT OFFICIALS This section gives the results of chi-square test as applied for VAT officials’ responses Table # 4.22 Education * Rate Knowledge Cross tabulation Chi-Square Tests Asymp. Table # 4. H1: There is a significant relation between education level and knowledge of VAT rates of respondents.73 As per the above chi square test results the probability value is 0.calculated value is lesser than table value.23: To test whether the male and female respondents differ or do not differ about the work burden in case of VAT administration. It leads to the acceptance of null hypothesis.05). H1: The attributes sex and work burden are dependent. H0: There is no significant relation between education level and knowledge of VAT rates of respondents. (2-sided) .e.22: To test whether the education level and knowledge of VAT rates are related or not related. the work burden of the respondents does not depend on the sex of such respondents.e. sex and work burden are independent I. H0: The attributes.756 (p>0. Sig.026 (p<0. there is no significant relation between the age of business and incidence of tax. Table # 4. There is an evidence to reject the null hypothesis and to conclude that there is a significant relation between the respondents education and knowledge of VAT rates.

794 130 df 16 (Source: Primary Data collected from VAT Officials and consultants) *Significance at 5% level .05).24: To test whether the designation and work burden of respondents are related or not.e. It leads to the acceptance of null hypothesis i.calculated value is greater than table value. Table # 4.563 df 4 N of Valid Cases 130 (Source: Primary Data collected from VAT Officials and consultants) *Significance at 5% level .74 Table # 4. As per the above chi square test results the probability value is 0. H0: There is no significant relation between designation and work burden of respondents. H1: There is a significant relation between designation and work burden of respondents. H0: The attributes.468* Value Pearson Chi-Square 3. age groups and work burden are independent H1: The attributes age groups .23 Gender * Work Burden Cross tabulation Chi-Square Tests Asymp. Table # 4. there is no significant difference between the gender and work burden of respondents. The above chi square test results show the probability value is 0. Sig.calculated value is greater than table value.399 (p>0.25: To test whether there is any relation between age group of respondents and work burden in case in case of VAT administration.05).468 (p>0. (2-sided) . (2-sided) . Sig.e. Table # 4. It leads to the acceptance of null hypothesis i.24 Designation * Work Burden Cross tabulation Chi-Square Tests Asymp.399* Value Pearson Chi-Square N of Valid Cases 16. there is no significant relation between the designation and work burden of respondents.

290 F 2.231 df 3 126 129 Mean Square 2.258.26 depicts the same.495 171.258 Sig.736 162.27 depicts the same.05) the null hypothesis is accepted and it is concluded that the age of business does not influence the work burden of respondents. Sig. H0: There is no relation between the education and awareness of exemptions. Since the probability value is 0.26 Age of Business and Work burden Sum of Squares Between Groups Within Groups Total 8.05).000 (p<0. there is an evidence to reject the null hypothesis and conclude that there is a significant relation between the age groups and their work burden. . The probability value of above chi square table is 0. . (2-sided) .calculated value is lesser than table value.000* Value Pearson Chi-Square N of Valid Cases 74.7 RESULTS OF ONE WAY ANOVA RELATING VAT PAYERS H0: The age of business do not influence the work burden of respondents. ‘F’ test was conducted and the table # 4. ‘F’ test was conducted and the table # 4. Table # 4.085 (p>0.912 1.25 Age Group * Work Burden Cross tabulation Chi-Square Tests Asymp.728 130 df 12 (Source: Primary Data collected from VAT Officials and consultants) *Significance at 5% level .085* (Source: Primary Data collected from VAT payers) *Significance at 5% level The result shows that calculated F value is 2. 4.75 Table # 4.

005 (p<0.904 139.248 20.76 Table # 4.27 Education and Awareness of Exemptions Sum of Squares Between Groups Within Groups Total 3. H0: There is no relation between the registration and incidence of tax.749 .28 Registration and Incidence of Tax Sum of Squares Between Groups Within Groups Total 2.534 Sig.092 F 3.165 F 4.005* (Source: Primary Data collected from VAT payers) *Significance at 5% level The result shows that calculated F value is 4.05) the null hypothesis is rejected and it is concluded that there is significant relation between registration and incidence of tax.829 23.819 143.085 (p>0.904 1. . . Since the probability value is 0.28 depicts the same.077 Df 3 126 129 Mean Square . Since the probability value is 0.534.061* (Source: Primary Data collected from VAT payers) *Significance at 5% level The result shows that calculated F value is 3. ‘F’ test was conducted and the table # 4. Table # 4. .05) the null hypothesis is accepted and it is concluded that there is no significant relation between education and exemptions awareness of respondents.574.574 Sig.723 df 1 128 129 Mean Square 3.

276 F 2.296 Sig. There is no significant relation between age of business and tax evasion.920 Sig.30 Age and business and Tax evasion Sum of Squares Between Groups Within Groups Total 11.29 Turnover and Convenience to pay tax Sum of Squares Between Groups Within Groups Total 81.30 depicts the same.514 171. .063 (p>0.77 H0: There is no relation between the turnover and convenience to pay tax. Table # 4. ‘F’ test was conducted and the table # 4.231 Df 4 125 129 Mean Square 2.296.717 159.063* (Source: Primary Data collected from VAT payers) *Significance at 5% level The result shows that calculated F value is 2. There is a significant relation between turnover and convenience to pay tax.439 2. Table # 4. .754 257.546 339.05) the null hypothesis is accepted. H0: There is no relation between the age of business and tax evasion. Since the probability value is 0.000 (p<0. ‘F’ test was conducted and the table # 4.920.29 depicts the same.000* (Source: Primary Data collected from VAT payers) *Significance at 5% level The result shows that calculated F value is 9. Since the probability value is 0.929 1.060 F 9. .05) the null hypothesis is rejected.300 df 4 125 129 Mean Square 20.

32 depicts the same.015 298.313 Sig.061 (p>0. ‘F’ test was conducted and the table # 4. 4. . ‘F’ test was conducted and the table # 4. Table # 4.297 Sig.31 Turnover and Tax avoidance Sum of Squares Between Groups Within Groups Total 41.003 (p<0.061* 113.8 RESULTS OF ONE WAY ANOVA RELATING TO VAT OFFICIALS H0: There is no influence of education on work burden.569 129 (Source: Primary Data collected from VAT Officials and consultants) *Significance at 5% level The result shows that calculated F value is 2.297.957 .78 H0: There is no relation between the turnover and tax avoidance.285 339. There is a significant relation between turnover and tax avoidance.386 F 4.32 Education and Work burden Sum of Squares Between Groups Within Groups Total 7.827 105. Since the probability value is 0.846 F 2.003* (Source: Primary Data collected from VAT payers) *Significance at 5% level The result shows that calculated F value is 4.05) the null hypothesis is rejected.31 depicts the same.300 Df 4 125 129 Mean Square 10.254 2.05) the null hypothesis is accepted. .743 Df 4 125 Mean Square 1. Since the probability value is 0. Table # 4.313. . That shows there is no significant influence of education on work burden.

872 Df 4 125 Mean Square 5. .9 RESULT OF CORRELATION Table # 4.05) the null hypothesis is accepted. 4.093 (p>0.038 Sig. Table # 4.527 F 2.149 2.e.038.79 H0: There is no relation between the designation and registration. there is no significant relation between designation and registration.33 Designation and Registration Sum of Squares Between Groups Within Groups Total 20.33 depicts the same.597 315. Since the probability value is 0.093* 336.469 129 (Source: Primary Data collected from VAT Officials and consultants) *Significance at 5% level The result shows that calculated F value is 2. ‘F’ test was conducted and the table # 4. i.34(a) Commercial Tax Department Gross Receipts Year 2006-07 2007-08 2008-09 2009-10 VAT(Rs in crores) 2290 16473 19305 21336 TNGST 1959 (Rs in crores) 13347 329 292 272 (Source: Secondary Data collected from Tamil Nadu statistical report) .

10 RESULT OF PAIRED t-TEST Table # 4.882 . Error Mean 1101. The correlation between VAT and TNGST is -0.69205 2701.34(b) Correlations VAT VAT Pearson Correlation Sig. (2-tailed) N 4 -.35(a) Total Revenue of the Government Amount in Crores Total income before VAT 8499(02-03) 9767(03-04) 11421(04-05) 13597(05-06) Total income after VAT 15637(06-07) 16802(07-08) 19597(08-09) 21606(09-10) (Source: Secondary Data collected from Tamil Nadu statistical report) Ho: There is no difference in mean revenue before and after the implementation VAT H1: There is difference in mean revenue before and after implementation of VAT Table # 4.84E4 N 4 4 Std.05 level (2-tailed).763 Std.026 4 1 ` * Correlation is significant at the 0. (2-tailed) N TNGST Pearson Correlation Sig.35(b) Paired samples statistics Mean Before VAT After VAT 1.974 which is highly negative indicating that higher revenue derived from the VAT is not associated with TNGST and vice versa.026 4 4 1 TNGST -.974* .0821E4 1.84603 1350. Deviation 2203.80 Table # 4. 4.974* .

889 df 3 Sig.01). 4.15596 t -25. (2-tailed) . Deviation 586.81 Table # 4.0 (Source: Primary Data collected from business firms i. Out of 130 respondents 44 respondents have high level knowledge about VAT rates. the null hypothesis is rejected and it is concluded that the mean revenue derived after implementation of VAT is significantly higher than the mean revenue derived before implementation of VAT. .11 COMPILATION OF OPINION OF VAT PAYERS AND OFFICIALS: VAT payers’ opinion: Table #4.7 100. 50 respondents have moderate knowledge and 36 respondents have minimum knowledge.31192 Std.35(c) Paired samples test Mean -7. Thus the implementation of VAT is effective in significantly increasing the total revenue of the Tamil Nadu Government.5 27. VAT Payers) Table # 4.8 38.36 shows the respondents knowledge of VAT rates.000* *Significance at 5% level Since the probability value is 0.000 (p<0.58950E3 Std.36 Table showing the knowledge of VAT rates Knowledge of Rates High Moderate Low Total Frequency 44 50 36 130 Percent 33. Error Mean 293.e.

VAT Payers) Table # 4.8 49.2%) respondents may ask help from others like follow VAT payers etc.1 100. VAT Payers) Table # 4.38 Table showing the awareness of proposed GST Proposed GST Yes No Total Frequency 87 43 130 Percent 66.9 33. 33% of respondents are not aware of GST.8%) respondents need the help of consultants at the time of filling returns. Table #4.0 (Source: Primary Data collected from business firms i. It means they recommend VAT system to continue in Tamil Nadu.39 Assistant from VAT consultant Help of others Yes No Frequency 66 64 Percent 50.39 reveals that 66(50.e.37 reveals more than 80% of responds vote for VAT system.82 Table #4. . VAT Payers) Table # 4.e.37 VAT or TNGST Continue in Tamil Nadu VAT System TNGST Total Frequency 105 25 130 Percent 80. Only 25 respondents vote for TNGST system.2 Total 130 100. 67% of respondents have awareness about proposed GST.0 (Source: Primary Data collected from business firms i. 64 (49.8 19.38 shows VAT payers’ awareness about proposed GST.0 (Source: Primary Data collected from business firms i.e.2 100. Table #4.

40 shows 100 respondents out of 130 (77%) are registered VAT dealers and only 23% of respondents are unregistered dealers.0 (Source: Primary Data collected from VAT officials and consultants) Table # 4.0 (Source: Primary Data collected from business firms i.8 2. 23. 66.9 23. only 7. VAT payers) Table # 4.e. Unregistered dealers (URDs) are those whose annual turnover is less than Rs.41 Table showing which system to continue in Tamil Nadu Continue in Tamil Nadu Frequency Percent VAT System TNGST Proposed GST Other System Total 86 10 31 3 130 66.2% of respondents recommend VAT system.3% respondents recommend other systems.7 23. 00. VAT officials’ opinion: Table #4.7% of respondents recommend continuation of TNGST and 2.1 100. .000. However they pay VAT as part of their purchase price.83 Table # 4.3 100.2 7.10.8% of respondents recommend proposed GST.40 Table Showing about the Registration Registration Yes No Total Frequency 100 30 130 Percent 76. They need not file separate return for VAT.41 shows the opinion of VAT officials of which system to continue in Tamil Nadu.

. v. Hence. 3. Manufacturing rates.e.12 This section complies the opinion given by VAT officials for the open ended questions included in the questionnaire. iii. Input Tax Credit. All units of supply chain are brought under tax net and tax evasion is checked to a certain extent. iv. The forthcoming GST is expected to do this job as it would be rolled out only after constitutional amendment. VAT phase is a transitional phase between General Sales Tax and Goods and Service Tax Act. turn over tax and surcharge. v. Incomplete implementation. Own state Government Policy. It Depends upon State Government Policy. Commodity codes cannot be found exactly. so it is a better system as compared to TNGST. i. Set-off tax already paid i. ii. iv. Sales tax comes under the State subject as per Indian constitution. How do you consider VAT as a better system as compared to TNGST? i. VAT Act is systematically examined and implemented. In TNGST lot of operational difficulties. It easer the burden of traders and manufactures. These are all tactics for getting income from a dealer and confusing them. iii. i. there is no additional tax.e.e. VAT is more clear and has well framed rules and regulations of the products as compared to TNGST. If the main aim of introducing VAT is to implement uniform tax system throughout the country then why each state has its own VAT Act? i. In TNGST work burden of officers is more when compared to VAT.84 4. 1. ii. but VAT has only one tax. 2. New entries to be made both in system and ledger. trading rates differ from State to State. it is difficult rather impossible to expect every State to follow a single rate structure. What difficulties you encounter in the VAT system? i.

v. GST system is the best one. Give general suggestions in the context of VAT? i. Needs to be fully computerized. More exemptions. iv. Undecided 5. Suggest a single uniform tax system in all the states. 4. Inadequate man power. iii. The main difficulties of VAT system in practices and lack of implementation of technical progress.85 ii. iv. ii. The Government of India raises the tax rates by slabs. Needs to be simplified more. inter-state purchase set-off should be made available. v. In VAT state Government has a lot of income but in CST central income. Equal treatment and equality for all. How do you compare the present VAT with the proposed GST? i. . But better to remove the tax slabs. Commodity code is needed. If exemptions are withdrawn VAT system would give more revenue to Government. iv. vii. v. Then only India will grow. e – Mode is not working 100%. iii. Presently VAT follows different set of rules and regulation in the Indian Union. vi. No idea about this topic. After the GST implementation the rate of levy of tax would increase. iii. ii.

86 4.16473 crores. From that one may conclude that after introducing the VAT the revenue of the state would grow every financial year.16 Commercial Tax Department Gross Receipts 25000 Revenue in Crors 20000 15000 10000 VAT 5000 0 TNGST Year The Table and Bar Diagram show the clear picture about the revenue growth of the state after implementation of VAT. Because from 2001-02 financial year to 2005-06 financial years TNGST’s highest collection was Rs.42 Commercial Tax Department Gross Receipts (Amount in Crores) Year VAT 01-02 02-03 8499 03-04 9767 04-05 11421 05-06 13597 06-07 2290 13347 07-08 16473 329 08-09 19305 292 09-10 21335 271 TNGST 7541 (Source: Secondary Data collected from Tamil Nadu statistical report) The above data are presented diagrammatically in Fig # 4. . The VAT has come in to force in Tamil Nadu in the year of 200607. VAT is most preferable to the State compared to TNGST. If one compares the revenue growth of TNGST and VAT.13597 crores in the year of 2005-06.13 REVENUE COLLECTION UNDER VAT Table # 4. On the other hand VAT was introduced in 2006-07 financial year. In the next financial year itself (2007-08) it collected Rs.

92 16.45 16.93 19.43 Commercial Tax Department Total Receipts (Amount in Crores) Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 VAT 2290 16473 19305 21335 TNGST 7541 8499 9767 11421 13597 13347 329 292 271 Total 7541 Variance 958 1268 1654 2176 2040 1165 2795 Growth Rate (Y-O-Y) 12.17 represent the revenue growth of Tamil Nadu Government.70 14. . The total revenue of the Government has consistently increased.25 (Source: Secondary Data collected from Tamil Nadu statistical report) 21606 The above data are presented diagrammatically in Fig # 4.x + 4843 R² = 0.63 8499 9767 11421 13597 15637 16802 19597 2009 10.17 TOTAL 25000 20000 15000 10000 5000 0 TOTAL Linear (TOTAL) y = 1797.43 and Figure # 4.00 7. Hence the implementation of VAT does not affect the total revenue of the State Government.05 15.87 Table # 4.988 Table # 4.

With introduction of VAT. Hence tax is compulsory payment or contribution by the people to the government for which there is no direct return to the tax payers. On 1st April 2007. it was used by Canada and 40 other industrialized countries. VAT replaced the single point tax which had a number of disadvantages.   It eliminates cascading impact of double taxation and promotes economic efficiency. the sales tax department has moved to a globally recognized sales taxation system that has been adopted by more than 130 countries.88 CHAPTER V SUMMARY. Sales Tax began in India with “petrol tax” introduced by the government of Madhya Pradesh. Another key factor in preparation of the design of state level VAT is the national consensus on certain issues. Following the Madhya Pradesh “petrol tax”. Madras Presidency introduced “Sales Tax” in 1939. primarily that of double taxation. During the British rule. . Without tax the Government cannot do any social benefit activities. The concept of VAT was first adopted by France in 1954. FINIDINGS AND CONCLUSIONS Summary of the Study A tax is “a back bone of every country to meet their social obligations. Government is the only person to levy tax. VAT is a modern and progressive taxation system which avoids double taxation. The consensus has been arrived at through the discussion in the empowerment committee of state finance ministers on implementation of state level VAT. self-assessment system with more trust put on dealers. Tamil Nadu is one of the 21 states in india which have introduced the Value Added Tax (VAT) system of taxation from 1 st April 2007. The design of Tamil Nadu state VAT is generally guided by the best international practices with regard to legal frame work. It is primarily a self-policing. as well as operating procedures. arrack and toddy shops were functioning in Madras Presidency. By 2000. VAT has other advantages for both business and government. In the addition to offering the possibility of a set-off tax paid on purchases.

mechanism resulting in better compliance. One Way ANOVA. correlation.89     It provides the potential for a stronger manufacturing base and more competitive export pricing. The total population of the study consists 260 respondents. It has an improved control. It widens the. VAT in Tamil Nadu is levied under a legislation known as the Tamil Nadu Value Added Tax Act (TNVAT Act). VAT is levied on sale of goods including intangible goods. Objectives of the Study  To study about value added tax system in general. tax base and promotes equity. . Convenience cum Judgment sampling techniques were adopted in this research. and as a result it offers a better financial system with less scope of error. The statistical tools used for the purpose of analysis of data were Chi-square test. The study has been conducted in a period of six months from December 2010 to May 2011.  To study the profile of VAT payers and VAT administrators. Paired t-Test and Factor Analysis.  To examine the influence of various factors on the work burden VAT officials. which include 130 VAT officials and VAT consultants/and 130 VAT payers.  To examine whether value added tax system helps to revenue appreciation to the government compare to other tax system like TNGST and finally  To find whether VAT system is convenient to the government as well as the VAT payers Methodology In the present study both primary and secondary data were used with the help of questionnaire from the respondents.  To examine the influence of various factors on VAT compliance by VAT payers. supported by the Tamil Nadu Value Added Tax Rules (TNVAT Rules). It is invoice based.

e. 37.  53 respondents are doing business 0-5 years. and 16 respondents’ turnover Rs. 37 respondents are 30-39 years. etc.  Qualification wise majority respondents are graduates i. 39 respondents 5-10 years. 111 out of 130.62.3% are unmarried.9%) respondents are 20-29 years.e. 16 respondents 10-15 years. VAT Officials: (Sample Size is 130)  Out of the 130 respondents 53.70 respondents and 60 respondents are female.5% (i.7% respondents are married and 42. only 3 respondents out of 130 are doing business for more than 20 years.10 to 20 lakhs.7% respondents have completed 12th standard.e.90 The major findings of the study are as follows VAT payers: (sample size is 130)  Among the 130 respondents more than 80% (i. and 17 respondents are Commercial Tax Officers. and 12 respondents are post graduates. 28 respondents) are 30-39.1-10 lakhs.e.e.e.1%) of respondents are male and 22 respondents are female.  60 out of 130 respondents’ turnover is Rs.40-50 lakhs. 19 respondents 15-20 years. 29 are post graduates and 6 are professional degree holders.  42 respondents out of 130 are Assistant Commercial Tax Officers. 83. Hardware.  57. 21 are Assistant Commissioners. 56. 30 respondents turnover is from Rs. and 23 respondents are 40-49 years old.  Majority respondents are graduate i.8% of respondents are male i. Pharmacy shop.  The majority respondents are married i. 41 respondents are tax consultants.  The respondents are engaged in different business like Provisional store.  Age group about VAT officials tells 29% of respondents are between 50-59 years old.e.57 respondents. 36 respondents are 40-49 years and only 19 are tn the age group of 20-29 years.  100 respondents out of 130 are registered VAT dealers. . 21.  More than 50% (i.

 There is a relationship between Turnover and Convenient to pay tax  There is no difference between the Age of business and Tax evasion of VAT payers. It denotes the designation and work burden of respondents are independent. .  There is no significant difference between the designation and work burden of VAT officials.  There is a relationship between turnover and tax avoidance. Findings of Chi-square Test  The work burden of the VAT payers is dependent the gender.  Work burden VAT payers are related to type of business.  The gender and work burden of VAT officials are independent.  There is a significant relation between turnover and work burden of VAT payers.  The factor analysis for VAT payers resulted in of 4 factors out of 10 variables. Findings of ANOVA  The age of business does not influence the work burden of VAT payers. 9 factors.  There is significant relation between turnover and incidence of tax.  There is no significant relation between Education and Exemptions awareness of VAT payers.  There is no significant relation between the age of business and incidence of tax. Findings of factor Analysis  The factor analysis for VAT officials resulted in clubbing of 30 variables into 9 components i. It shows both attributes are independent.  There is a relation between age and work burden of VAT officials.  There is a significant Registration and Incidence of tax of VAT payers.  There is a significant relation between the respondents’ education and knowledge of VAT rates.91  Income wise 93% of respondents earn 1-4 lakhs per annum and only 9 respondents out of 130 earns 4-8 lakhs per annum.  There is no relation between education and work burden VAT payers.e.

64 (49. Compilation of opinion/suggestions of respondents I. 23.  67% of respondents have awareness about proposed GST. VAT officials  66. 50 respondents have moderate knowledge and 36 respondents have minimum knowledge.  Each state has its own VAT Act. Because of  Own state Government Policy. II. only 7. Findings of Paired t-Test On based a paired t-Test finds the implement of VAT is derived revenue is significantly very more.  80% of responds vote for VAT system and 25 respondents vote for TNGST system.3% respondents recommend other systems. Findings of Correlation There was a highly negative correlation indicating that higher the revenue derived from the VAT is not associated with TNGST. trading rates differ from State to State.  66 respondents need the help of consultants at the time of filling returns.2% of respondents recommend VAT system. .7% of respondents recommend continuation of TNGST and 2.8% of respondents recommend proposed GST. 33% of respondents are not aware of GST. VAT payers  44 respondents have high level knowledge about VAT rates.  These are all tactics for getting income from a dealer and confusing them.92  There are no variations of vat officials education and their work burden of VAT officials.2%) respondents may ask help from others.  Manufacturing rates.

 VAT is clear and has well framed rules and regulations of the products as compared to TNGST.  If exemptions are withdrawn VAT system would give more revenue to Government.  The Government of India raises the tax rates by slabs. Difficulty in implementation.  Needs to be fully computerized. i.  In TNGST work burden of officers is more when compared to VAT. But better to remove the tax slabs.  Inadequate man power.  e – Mode is not working 100%. i. turn over tax and surcharge.  Difficulties of VAT system. there is no additional tax. Suggest a single uniform tax system in all the states. Then only India will grow.  Commodity code is needed. but VAT has only one tax.e.  Commodity codes cannot be found exactly.  More exemptions.  General suggestion for VAT.e. New entries to be made both in system and ledger.93  VAT is a better system compared to TNGST because of:  In TNGST lot of operational difficulties. .  Presently VAT follows different set of rules and regulation in the Indian Union.

12. It must be in local language. the State Government should issue suitable manual of VAT to the assesses. From 11th July 2011onwords the government of Tamil Nadu has increased the VAT rates from 1%.14.5%.5% to 1%. Suggestions are made based on the respondent’s opinion. VAT payers feel heavy work burden in case of filing of VAT return. For that.5%. Definitely it would help to further increase the revenue.4%. This will overcome the limitation in future. for that they need the assistance of VAT consultants. So the authorities of the Commercial Tax Department should fill the vacancies in Commercial Tax Offices immediately. Finally it is concluded VAT helps to have more revenue collection to the Government of Tamil Nadu. It reavels one of the drawbacks of VAT. because of inadequate staff members. It happens because of lack of sufficient knowledge.94 Conclusion and Suggestions The suggestions and conclusion are based upon the results of the study. So the government should take utmost care in the matter of issuing manual and recruitment of staff members. So the authorities should concentrate on recruitment of staff members. . which should contain the practical application of VAT procedures. VAT officials also feel heavy work burden to administer the VAT.

Wiley Eastern Ltd.  Arindam Das Gupta and Ira N. 2005. Second Edition. New Delhi. the Empowered Committee of State Finance Ministers. 2010. 10th Edition.C. 10. March 2007). 1994. Gang. New Delhi-110 002. Can Reform Models of Value Added Taxation stop the VAT Evasion and Revenue Shortfalls in the EU? (Journal of Economic Policy Reform Vol. c. Business Books from SAGE Publications Ltd.Sitaraman & Co Private Ltd.  Andrea gebauer.  Arvind Ashta. chang woon nam & Rudiger parsche. New Delhi-110 044. Response Book.V “Indirect Taxation”. 1996).95 BIBLIOGRAPHY Books and Hand Materials  A guide on value added tax by The Coimbatore district small industries association (CODSSIA)  Ajai S. New Age International Ltd. 09-27 December 8.R “Research Methodology (Methods and Techniques)”. Law Book Publisher. .Gaur “Statistical Methods For Practice and Research (A Guide to Data Analysis using SPSS)”. 2009).Gaur and Sanjaya S. Value Added Tax Evasion. European Vat – General Principles (Social Science Research Network 2007). Auditing And Transactions Matching (Social Science Research Network. Journals and Articles  Alan Schenk. New Delhi-02.  Srikanth Venkatesan (Advocate) “Understanding Tamil Nadu Value Added Tax (Covering Case Laws of the Madras High Court and Supreme Court)”.  First Discussion Paper on Goods and Service Tax in India.  Balachandran.  Tamil Nadu Statistical Report of Commercial Tax Department. Chennai-14. Sultan Chand Publications. Worldwide Versus Territorial Tax Systems: Comparison of Value Added Tax and Income Tax (Wayne State University Law School Legal Studies Research Paper Series No.  Kothari .

The Macroeconomic Impact of the IMF Recommended VAT Policy for the FIJI Economy: evidence from a CGE model (Blackwell Publishing Ltd. 17p).  Christian Hubert Ebeke.  Lumumba Omweri Martin et al. Is the Value Added Tax Naturally Progressive? (Social Science Research Network 2006). An Analysis Of South Africa’s Value Added Tax (World Bank Policy Research Working Paper 3671. 2005. Dec2005. The Effectiveness of Electronic Tax Registers in Processing of Value Added Tax Returns (African Journal of Business & Management -AJBUMA Vol. Vol.  Rao. 1 (2010). Value Added Tax And Tax Revenue In Developing Countries (2010). Shankaraiah and D. 2003). August 2005).  Glenn P.  Michael Keen and Ben Lockwood. 53 Issue 3. 11 pages). VAT Refunds: A Review of Country Experience(International Monetary Fund.2007). Value Added Tax Accounting: Concepts And Issues (Social Science Research Network. p720-736. The Reduced VAT Rate for Small Business in Croatia (Original scientific paper.P. Value Added Tax And Sales Tax (Comparative Overview) (Social Science Research Network. K. Rao. 19p).96  Benjamin A. Glenn. Value Added Tax versus Social Security Contribution Research Network .Aug 1999). M.  Dr. Jenkins et al. Remittances.  Helena Blazic and Mira Dimitric.  Paresh Kumar Narayan.  Michael Keen and Jack Mintz: The Optimal Threshold for a Value Added Tax (Journal of Public Economics. Govinda. VAT: The Elixir for America’s economic Ills? (Journal of Finance and Accountancy.  Berhan. The Value-Added Tax: Its Causes and Consequences ( International Monetary Fund . Neil. 2010). 2009). Tax Reforms in India: Achievements and Challenges Ahead (Journal of Asian Economics. 2009 page No 83-114). Bahro. p993-1011.A and Jenkins.N. Vol.  Laszlo Goerke. The High Costs Controlling CST and VAT Evasion (Canadian Tax Journal. Zabov. 2007).  Marna Kearney. 2004). Sherman Robinson and Karen Thierfelder. (Social Science .  Graham Harrison and Russell Krelove. 2005). 16 Issue 6.  Lyubomir P.

24 Issue 2.com  www.in  www.indiamart. 2000).97  Rawat Deepa Agarwal.tnvat.  Renata Dombrovski and Sabina Hodzic. Macroeconomic Effects of VAT in India (Finance India.in  www.emathzone. Tax Evasion and Elusion of Value Added Tax in Colombia (Social Science Research Network.gov.google. Impact Of Value Added Tax On Tourism (International business and economic research journal. Web Sites Used:  www.  Sameer R. Vol.com  www.9. A General Equilibrium Analysis Of Vat In India (Blackwell Publishing Ltd. Rege.edu. 2010). vol.com .gov.au  www.com  www.tn.  Roberto Steiner and Carolina Soto. Kalpna Agarwal And Gunjan. Jun2010. 1994). p493-504).uq.tax4india.

The opinion given would be treated as highly confidential and will be used only for academic purpose.98 QUESTIONNAIRE ANNEXURE-I “A QUESTIONNAIRE FOR VAT PAYERS” Dear Sir/ Madam I am A. Educational qualification a) Upto12th standard c) Post Graduate e) Others b) Graduate d) Professional degree please specify……………………………………………..Phil scholar in commerce. Age Group a) 19 Years or Younger c) 30 . Pondicherry University. 1. puducherry.49 Years f)above60 Years 5. Gender a) Male b) Female 3. Kindly put a tick for the right options and give your opinion.59 Years 4. I am doing research in the area of “value added tax with special reference to Thiruvallur Region”.HARIKUMAR an M. Name: ……………………………………………………………………………… 2. I request you to solicit the required information for research purpose. Marital status a) single b) Married b) 20 .29 Years d) 40 .39 Years e) 50 . .

How old your business is? a) 0-5 years c) 10-15 years b) 5-10 years d) 15-20 years please specify……………………………. 8. Which type of business are you doing? a) Pharmacy shop b) Provisional store d)Fancy store c) Electrical or Electronics shop e) General merchant g) Foot wear shop i) Automobile shop k) Others f) Textile h) jewellery shop j) Hardware Please mention……………………………………… 7.99 6. Whether you are a registered VAT dealer? a) Yes b) No . Annual turn over a) 1 to 10Lakhs d) 30 to 40Lakhs g) 60 to 70Lakhs j) 90 to 1 crore b) 10 to 20Lakhs e) 40 to 50Lakhs h) 70 to 80Lakhs k) Above 1 crore c) 20 to 30Lakhs f) 50 to 60Lakhs i) 80 to 90Lakhs Please specify how much? ………………………………………. d) More than 20 years 9.

“It is easy and convenient to pay tax under VAT” a) 1 b) 2 c) 3 d) 4 e) 5 15. Are you aware of exemptions available under Value Added Tax system? a) Yes b) No . 3-undecided. in case of filing of VAT return? a) 1 b) 2 c) 3 d) 4 e) 5 11. In Value Added Tax system there is some chance of tax evasion? a) 1 b) 2 c) 3 d) 4 e) 5 17. The Value added tax system actually leads to a simpler tax system. a) 1 b) 2 c) 3 d) 4 e) 5 16. In Tamil Nadu state Value added tax system helps to most dealers’ growth? a) 1 b) 2 c) 3 d) 4 e) 5 12. Value added tax system is an alternative mechanism of collection of tax? a) 1 b) 2 c) 3 d) 4 e) 5 19.100 1-strongly disagree. 4-agree. Incidence of tax is more under value added tax system as compared to other systems like TNGST system. a) 1 b) 2 c) 3 d) 4 e) 5 13. 2-disagree. The assessment procedures under VAT are very simple and clear. 5-strongly agree 10. In Value Added Tax system there is some chance of tax avoidance? a) 1 b) 2 c) 3 d) 4 e) 5 18. The computation of amount of tax payable is simple under VAT as compared to other systems. Value added tax system has less work burden. a) 1 b) 2 c) 3 d) 4 e) 5 14. a) 1 b) 2 c) 3 d) 4 e) 5 20.

Are you aware of incentives available to dealer under VAT? a) Yes b) No If yes what type of incentives are availed of? Please mention a) …………………………………………………… b) ………………………………………………… c) …………………………………………………… d) …………………………………………………….101 21. Are you taking the help if tax consultants for filing tax VAT returns? a) Yes b) No . 22. c) …………………………………………………… d) ……………………………………………………. Which tax system would you recommend to continue in Tamil Nadu? a) Value added tax system b) TNGST 25. Under which type you are paying VAT? a) MANVAT b) Whole sale VAT c) Retail VAT 24. mention the goods you are dealing which are exempted? a) …………………………………………………… b) ……………………………………………………. In your business. a) High b) Moderate c) Low 23. Are you aware of the proposed GST system? a) Yes b) No If yes would you like recommend for the adoption of GST system a) Yes b) No 26. 27. What about your knowledge about Value added tax system in the matter of tax rates.

59 Years 4... Marital status b) 20 .. I am doing research in the area of “value added tax with special reference to Thiruvallur Region”. Pondicherry University...........102 If yes how much fees are you paying the.....39 Years e) 50 . Name: ……………………………………………………………………………… 2.. I am A. puducherry...... The opinion given would be treated as highly confidential and will be used only for academic purpose....HARIKUMAR an M.29 Years d) 40 ...........Phil scholar in commerce. Age Group a) 19 Years or Younger c) 30 ... Kindly put a tick for the right options and give your opinion... 1.. Gender a) Male b) Female 3..49 Years f)above60 Years . I request you to solicit the required information for research purpose.. ANNEXURE-II “A QUESTIONNAIRE FOR VAT CONSULTANTS AND OFFICIALS” Dear Sir/ Madam..

Educational qualification a) upto12th standard c) Post Graduate e) Others b)Graduate d) Professionals please specify……………………………………………. Annual income a) 1 to 4Lakhs c) 8 to 10Lakhs b) 4 to 8Lakhs d) 10Lakhs above . Employment designation / Position currently held a) Professional cadre c)Deputy commissioner e) Commercial tax officer f) Assistant commercial tax officer g) Tax analyst/consultant b) Joint commissioner d)Assistant commissioner 7. 6.103 a) single b) Married 5.

a) 1 b) 2 c) 3 d) 4 e) 5 15. a) 1 b) 2 c) 3 d) 4 e) 5 9. 3-undecided. In Tamil Nadu state Value added tax system helps to most dealers’ growth? a) 1 b) 2 c) 3 d) 4 e) 5 11. 4-agree. Implementation of VAT reduces tax avoidance and Evasion.104 1-strongly disagree. VAT payer feels “it is easy and too convenient to pay” a) 1 b) 2 c) 3 d) 4 e) 5 14. Registration of all taxable persons is must for successful implementation of tax. Value added tax system has less work burden? a) 1 b) 2 c) 3 d) 4 e) 5 10. 5-strongly agree 8. a) 1 b) 2 c) 3 d) 4 e) 5 . Value added tax system is expected to prevent tax loss to the state. The Value added tax reforms are good for the economy of Tamil Nadu. Value Added Tax system has lot of conditions imposed in registration. a) 1 b) 2 c) 3 d) 4 e) 5 12. a) 1 b) 2 c) 3 d) 4 e) 5 16. The Value added tax system actually leads to a transparent tax system. a) 1 b) 2 c) 3 d) 4 e) 5 13. 2-disagree.

a) 1 b) 2 c) 3 d) 4 e) 5 21. Value added tax system is an alternative mechanism of collection of tax? a) 1 b) 2 c) 3 d) 4 e) 5 . coverage) a) 1 b) 2 c) 3 d) 4 e) 5 20. a) 1 b) 2 c) 3 d) 4 e) 5 18.e. There is a general belief that revenue collection under VAT is more than that under TNGST. a) 1 b) 2 c) 3 d) 4 e) 5 19. 2-disagree. Tax reforms in India have been initiated as a part of the economic reforms in 1991. The Value Added Tax system shows a complete and true appreciation of fiscal responsibility. VAT covers all type of goods and services and experts say it is one of the important advantages. The Value added tax procedures are very simple and clear. Value Added Tax system provides revenue security to the government.105 1-strongly disagree. 4-agree. a) 1 b) 2 c) 3 d) 4 e) 5 25. a) 1 b) 2 c) 3 d) 4 e) 5 22. Value added tax system ensures that a tax payer does not involve in fraudulent activities. a) 1 b) 2 c) 3 d) 4 e) 5 24. 5-strongly agree 17. The recent evolution of VAT can be considered as the most important fiscal innovation. (I. 3-undecided. a) 1 b) 2 c) 3 d) 4 e) 5 23.

An appropriate system for registration and tax payer identification is required for administrating of VAT. 2-disagree. Retail VAT(R-VAT) is difficult to administer compared to MANVAT and W-VAT? a) 1 b) 2 c) 3 d) 4 e) 5 35. a) 1 b) 2 c) 3 d) 4 e) 5 32. a) 1 b) 2 c) 3 d) 4 e) 5 31. a) 1 b) 2 c) 3 d) 4 e) 5 30. 3-undecided. The main aim of the government in introducing Value Added Tax system is to implement the uniform tax system throughout the country. a) 1 b) 2 c) 3 d) 4 e) 5 27. In TNVAT the filing of chartered accountant report and opting for self assessment is not mandatory. a) 1 b) 2 c) 3 d) 4 e) 5 29. Tax payer Identification Number (TIN) is must to identify the dealers. Value added system has a sound and effectively enforceable penalty system that stimulate dealers to go for voluntary compliance. encourage and induce the dealer for voluntary compliance.106 1-strongly disagree. a) 1 b) 2 c) 3 d) 4 e) 5 . 5-strongly agree 26. a) 1 b) 2 c) 3 d) 4 e) 5 28. Is VAT promotes voluntary tax compliance. a) 1 b) 2 c) 3 d) 4 e) 5 33. 4-agree. Value Added Tax system suffers from lack of clarity on the treatment of interstate sales. Value added tax system has appropriate tax structure and simple procedures and forms to facilitate. Large number of small scale businesses are under misconception that input tax has to be adjusted against output tax? a) 1 b) 2 c) 3 d) 4 e) 5 34.

may not be taxed under VAT? Because. etc. If the main aim of introducing VAT is to implement uniform tax system throughout the country then why each state has its own VAT Act? .. a) It is difficult to administer b) It is based upon their price fluctuations c) It is not considered goods under VAT act d) None of the above If you choose none of the above option please indicate the correct reason for that ……………………………………………………………………………………… ……………………………………….107 36. Which tax system would you recommend to continue in Tamil Nadu? a) Value added tax system b) TNGST c) Proposed GST d) Other system (please mention …………………………………………………………………………………………………………) 40. petroleum products. Certain goods like lottery. 39. Suitable system of invoicing and bookkeeping is required? a) 1 b) 2 c) 3 d) 4 e) 5 38. Whether incidence of tax avoidance and evasion has reduced considerable under VAT in comparison with TNGST? a) Yes b) No 41. Dealers are highly satisfied at the time of your educational visit? a) 1 b) 2 c) 3 d) 4 e) 5 37.

Give the general suggestion in the context of VAT? .108 42. How do you consider VAT as a better system as compared to TNGST? 43. What difficulties you encounter in the VAT system? 44. How do you compare the present VAT with the proposed GST? 45.