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A look at the Value Added Tax in India

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  1. Introduction
  2. Concept of VAT
  3. Underlying priciples of VAT
  4. Modus-operandi of VAT
  5. Advantages of VAT
  6. Disadvantages of VAT
  7. Bibliography
  8. Conclusion

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. [...]

[...] Myles (1995)"On the European Union VAT Proposals: The Superiority of Origin over Destination Taxation," Fiscal Studies, 16: 1-17 López-Garcia, M. (1996)"The Origin Principle and the Welfare Gains from Indirect Tax Harmonization," International Tax and Public Finance, 83-93 National Institute of Public Finance and Policy (1994) Reform of Domestic Trade Taxes in India: Issues and Options (New Delhi) Norregard, John (1997) : Assignment' in Teresa Ter-Minassian Fiscal Federalism in Thoery and Practice, International Monetary Fund, Washington , DC, pp 65-66 Poddar, S. (1999) ?Considerations in the Design of a VAT at the [...]

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