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SUMIT KUMAR -0847 PRAVEEN KUMAR-0831 SUNIL DWIVEDI-0848 ROMIL JAIN -0838 PRIYA GOEL-0851 VARSHA AGARWAL-0852 PRIYANKA TEWATHIA-0832 ABHIMANYU KATOCH-0801 M.JAVED-0824 AKANSHA GOEL-0810
The indirect tax imposed in India before vat was Commodity Tax Excise duty MODVAT CENVAT
Tax is nothing but money that people have to pay the Government, which is used to provide public services Though the collection of tax is to augment as much revenue as possible to the Government to provide public services, over the years it has been used as an instrument of fiscal policy to stimulate economic growth. Thus it is one of the socio-economic objectives.
Direct tax-If the taxpayer bears its
incidence and is not able to pass on the burden, such tax is direct tax Example: Income Tax, Wealth Tax, Gift Tax etc.
Indirect tax- A tax that is not assessed on and collected from those who are intended to bear it.Indirect tax is a tax on goods and services, the incidence of which is borne by the consumers who ultimately consume the goods and services. The major source of indirect taxes are excise duty, customs duty, sales tax, service tax etc.
Excise Duty is an indirect tax levied and collected on the goods manufactured in India Excise tax applies only to one commodity or a related group of commodity produced (e.g. Tobacco products) Central excise revenue is the biggest single source of revenue for the Government of India The scheme of Central Excise levy is suitably adapted and modified to serve different purposes of price control, sufficient supply of essential commodities, industrial growth, promotion of small scale industries and like Authority for collecting the Central Excise duty.
BasicExciseDuty This is the duty charged under section 3 of the Central Excises and Salt Act,1944 on all excisable goods other than salt which are produced or manufactured in India at the rates set forth in the schedule to the Central Excise tariff Act,1985. Additional duty of excise Section 3 of the Additional duties of Excise (goods of special importance) Act,1957 authorises the levy and collection in respect of the goods described in the Schedule to this Act. This is levied in lieu of sales tax and shared between Central and State Governments. These are levied under different enactment's like medicinal and toilet preparations, sugar etc. and other industries development etc.
As per the Section 37 of the finance Act,1978 Special excise Duty was attracted on all excisable goods on which there is a levy of Basic excise Duty under the Central Excises and Salt Act,1944.Since then each year the relevant provisions of the Finance Act specifies that the Special Excise Duty shall be or shall not be levied and collected during the relevant financial year.
Excise was first introduced on cotton yarn in 1894,mainly to check exports of Indian textiles to U.S.A,CHINA ,JAPAN, and HONG KONG Further it was imposed on motor spirit(1917),kerosene(1922),silver(1930),a nd sugar and matches(1934). A consolidating act was passed in 1944 known as central excise and salt act
Modvat introduced in 1986 stands for ‘modified value added tax’. It is a scheme for allowing relief to final manufactures on the excise duty borne by their supplier in respect of goods manufactured by them.
It applies to certain specific item & is meant to limit the cascading effect of duty incidence on a no. of goods where the modvat credit can be claimed on the purchase of raw materials on which excise has been paid.
Amount of excise duty payable upon the value of the final product & the value of duty. This will decrease the cost of final product considering through the availability of instant credit of duties paid on the inputs & consequently reduction of interest cost. Firstly applied to all level of finished goods later on, on capital goods also.
FOR SSI:They would be reqd. to pay excise duty calculated at 60% of the normal duty on clearances up to Rs 50 lakh. Rs 50-75 lakh – 80% Rs 1 crore – at normal rate. For capital goods :Custom duty & CVD exempted to fertilizers industry.
Power generation sector will continue to attract 20% duty. No CVD will be charged from them. Refineries will be attracted to import capital goods at a duty on par with fertilizer sector. In telecom sector – in respect of capital goods not produced within the country there will be a customs duty 20% plus 2% CVD (CVD will be exempted for first 2 yrs).
is introduced in April 1, 2000. Simplified the tax system New hope that VAT can easily be implemented in states.
For smooth & speedly implementation of Vat at centre & states, it made following recommendations. Publicity awareness programme should be started. Uniformity of all state legislations & procedures mutual acceptable mechanism Discount in other local taxes. Additional duty of excise may continue for textiles
permanent suitable alternative with adequate powers to take action against discriminatory taxes & practices.
was first introduced in 1914 in France It is a multi-point tax with set off for tax paid on purchases. It is collected in installments at each transaction in the productiondistribution system.
VAT Net paid on Price inputs Goods 0.00 leaving M Goods 0.40 leaving W Goods 0.60 leaving R 4.00 6.00 9.00
0.40 0.60 0.90
Gross VAT to Price custom s and excise 4.40 0.40 6.60 9.90 0.20 0.30
Three ways to treat the cost of capital goods : Income Variant: Gross reciepts-Cost of intermediate goods-Depriciation Consumption Variants: Gross reciepts- Cost of intermediate goods- Costs of capital goods Gross Product variants: Gross recipts-Cost of intermediate goods
India has potential to grow >8% annually Manufacturing sector required to grow >12% Manufacturing is facing erosion of its competitiveness due to archaic & tax exporting indirect tax regime in spite of intrinsic ability to Eliminates tax succeed cascading, lowering External reforms overall burden of progresses as scheduled integrating India with the tax, improves global economy efficiency & Internal reforms critical affordability and for higher growth, Introduction of VAT will put Indian stimulates fast economy on investment and track of consumption employmentgrowth by giving impetus to domesticto demand and will facilitate to achieve vision potential of realize of 8% GDP growth the domestic market
How VAT will help VAT is the key to develop common domestic market through removal of trade barriers and simplification of indirect taxes
of multiple taxation Removal of trade barriers Eliminates tax cascading VAT promotes competitiveness of domestic industries in the world market
rate structure Tax Evasion Difficult to operate due to tax rivalry Lots of paper work
Uniformity in Rates Exempt Rate - 0% 46 commodities consisting of natural and unprocessed products; Items legally barred from taxation; and items having social implications Special Rate - 1% Gold and silver ornaments Essential/Mass Consumption Rate - 4% 270 goods comprising basic necessities medicines and drugs; all agricultural and industrial inputs; capital goods; aluminium, copper, zinc and extrusion Optical fibre and optical fibre cables Revenue Neutral Rate - 12.5 % List of 550 goods to be released
the computation at each level of production. Cross check the paper work. Problem faced by the developing countries. Problems faced by small scale producers.
revenues would not be effected severly. Some products could actually become costlier depending upon that they suffered earlier. Increases the tax registration. VAT and Inflation.
Pricing under VAT
Price = 200 Value add. = 100 VAT on VA = 12.50 SP = 212.50
Customer pays = Rs. 246.25
Price = Rs. 100 VAT @ 12.5% - 12.5 SP = 112.50
Price = 212.50 Distributor Margin = 20 VAT on Rs. 20 = 2.50 SP = 235.00 Price = 235 Retailer Margin = 10 VAT on Rs. 10 = 1.25 SP = 246.25
Proposed by Varsano and eloquently Preserves the zero rating of inter provincial sales. Its an add on to the federal VAT. CVAT rate is broadly average of the rates of provincial VAT. No scope for game playing by provinces - exports and imports.
This scheme was proposed by keen and smith. Same tax rate for all sales to register traders. VIVAT= COMMON FEDERAL VAT (intermediate rate) Or VIVAT=COMMON WITH HOLDING TAX(intermediate rate)
Preserves the destination principle and provincial autonomy. Rates are chosen centrally. Ensures no game playing by the provinces.
of revenue consequences for the Centre and the States of adopting each of the three types of VAT. Central VAT option gives the centerstate revenue breakdown. Union excise taxes and all state taxes are combines into single VAT. The centre then shares out the proceeds from both the VAT and excises to keep the states share in after-sharing tax revenue at its current level.
from small number of goods on which excises retained , no central domestic indirect taxation sales tax expanded into state VATs which raise current sales tax plus half of current customs revenue and half of the current union excises. of excise and personal income tax revenue
centrally excised goods taxed under central VAT and state sales tax becomes state VATs of personal income tax continues, sharing of union excises and VAT to give current after sharing allocation of revenues. VAT raises current sales tax plus on quarter of current customs, central VAT raises half of the current central excises plus one quarter of current customs.
Jha Committee 1977-78 Import restriction and high import tariffs High rate of sales and excise tax Higher degree of control on industrial capacity
The Tax Reform Committee, 1992, or the Chelliah Committee carried forward the work of Jha committee. It recommended Central VAT to replace excise duties and also suggested a State VAT to replace sales tax
Uncontrolled pattern of incidence on final products Different tax rates Avoidable increase in costs and prices Adverse effect of cascading on exports
Central VAT: The Committee urged that the following steps must be taken 1)Extension of excises 2)Reduction in the level of rates 3)Gredual reduction in the numbers of rates 4)Extension of CENVAT 5)Extension of VAT
of VAT to wholesale
Introduction of VAT system required reforms in two areas : o Harmonization of the state tax laws Lack of uniformity in definitions & interpretation of various terms ,classification of goods. o CST reforms Stabilizing it at 1 % It closes to Rs.15000crores each year.
One can see both VAT credit eligible and uneligible taxes prevailing. Due to CST being origin based. This will encourage business to adopt local purchases to avail of maximum VAT credit. Increase in negotiations for price reductions with out of state customers to pass on VAT credit. In the short term we could see more depots and stronger preference for regional suppliers: It would eventually stop when the CST is brought down to 1% or completely abolished.
India has for long debated on the issue of introduction VAT. The Central Government has done its bit by reducing the CST to 2% and emphasizing that CST reforms would be completed by 2006. Its now time that corporate started their preparations to realize the savings through logistics realignments and depot revamping. It is only then that the Indian economy
In India, the process of switch over to VAT was initiated in 1993 Government was to levy VAT regime in 2001 but shift by two years to April 2003. it has to be applied all across the country, it is feared that lack of preparedness may once again delay the implementation of the value added tax regime The success of VAT would depend upon the extent of homogeneity in the States wide divergence will affect growth and competitiveness. It is expected that adoption of VAT would not only help in avoiding the cascading effect of indirect taxation, It would help in reducing tax evasion as it would
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