About Vat

In: Business and Management

Submitted By subhangisomya
Words 2997
Pages 12
A brief on VAT (Value Added Tax)
What is VAT?
VAT is a multi-stage tax levied at each stage of the value addition chain, with a provision to allow input tax credit (ITC) on tax paid at an earlier stage, which can be appropriated against the VAT liability on subsequent sale.
VAT is intended to tax every stage of sale where some value is added to raw materials, but taxpayers will receive credit for tax already paid on procurement stages. Thus, VAT will be without the problem of double taxation as prevalent in the earlier Sales tax laws.
Presently VAT is followed in over 160 countries. The proposed Indian model of VAT will be different from VAT, as it exists in most parts of the world. In India, VAT has replaced the earier
State sales tax system.
One of the many reasons underlying the shift to VAT is to do away with the distortions in our earier tax structure that carve up the country into a large number of small markets rather than one big common market. In the earlier sales tax structure tax is not levied on all the stages of value addition or sales and distribution channel which means the margins of distributors/ dealers/ retailers at large not subject to sales tax earlier.
Thus, the sales tax pricing structure needs to factor only the single-point levy component of sales tax and the margins of manufacturers and dealers/ retailers etc, are worked out accordingly. internal trade and impeded development of a common market. prices by an amount higher than what accrues to the exchequer by way of revenues from it.
Also, there was the problem of multiplicity of rates. All the states, provided for plethora of rates.
These range from one to 25 per cent. This multiplicity of rates increases the cost of compliance while not really benefiting revenue.
Heterogeneity prevailed in the structure of tax as well. Apart from general sales tax, most states used to levy an additional…...

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