Unlike the erstwhile single point or cascade type of sales tax system, Value Added Tax (VAT) is a multi-point sales tax levied on the value added to goods with set-off for tax paid on purchases (inputs) and capital goods. What this means is that the amount of tax paid by the dealers for purchase can be deducted from the tax collected by him on sales, thereby paying just the balance amount to the government. In this perspective, this article presents an overview of various key to divide the tax by dealers, consumer and industrialists because of VAT is a non-cascading effect of taxation. The term value added refers to increase in value of goods and services at each stage of production/transfer of goods or commodities/services. Thus, VAT basically means the tax likely to be levied on the value added by an organization at each stage of its rendering services or producing goods. It is a simple transparent tax collected on sale/transfer of goods/services and has the unflinching capacity to increase the economic development of a society through better tax mobilization.
[...] UNDERLYING PRINCIPLE OF INITIATE VAT:- In the existing sales tax structure there are problems of double taxation of commodities and multiplicity of taxes, resulting in a cascading effect of tax burden. For instance, in the existing structure, before a commodity is produced, inputs are first taxed and then after the commodity is produced with input tax load, output is taxed again. In the VAT, a set-off is given for input tax as well as tax paid on previous purchases. In the prevailing sales tax structure, there is a multiplicity of taxes in several states, and such taxes include turnover tax, surcharge on sales tax, additional surcharge etc. [...]
[...] The harmonization of input tax credit which is the essence of VAT system requires a well formulated and compact networking based on computer access facility on a large scale all around the country and abroad which is not readily available in India for the lack of available infrastructures at its disposal in different hinterlands of various states. CONCLUSION:- VAT is a progressive tax system to ensure and to observe tax equity and tax neutrality as well as to usher economic solvency of a society. [...]
[...] Under VAT there is no tax on tax since only value added at any stage of production or distribution of goods is made subject matter of tax and an allowance is offered for the previously taxed material cost and other overhead charges so incurred. With off-setting of tax on inputs against that on output, VAT does away with tax on tax claiming input tax credit under VAT ensures proper invoicing. These features of VAT encourage voluntary disclosure of complete information on business turnover. [...]
[...] Over and above this, it may be reiterated here that VAT is a tax which is levied in an equitable manner at each point of production or distribution process of a firm with a spillover mission to ensure legitimate tax revenue collection without enhancing the tax liability and without increasing the cost. Primary producer P Secondary producer/dealer Q sale of goods to Q Rs.3000 Input VAT payable@10% Rs Rs.3000 Addl. input/profit Rs.2000 Sale to R Rs.5000 VAT@10% Rs. 500 Less: input tax credit Rs. [...]
[...] VAT is equally applicable in every sort of transaction leading to value added whether by a small trader or by a big wholesaler and thus VAT is a rational tax system. VAT MODUS OPERANDI:- The VAT methodology is simple and easy to understand. Let us assume that P is the primary producer/manufacture who sells his products to Q who is a secondary producer/manufacture who again sells or transfers his finished products to R who is a dealer/wholesaler and he sells goods to the final consumer. [...]
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