important facts about vat
- This form of tax is difficult to operate from both business and administration position.
- It is quite regressive
- This tax favors capital intensive firms
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We all are aware of the fact that we have to pay for VAT for goods and services
we have received. It is considered to be a general consumption tax which is
assessed on these items. This is the indirect tax which we have to pay for the
consumption of these goods. The tax has to be paid by the original producers or
the manufacturers upon the transfer or change in goods. This tax is mainly based
on the value of the items or goods and it is associated with the difference in
the value added by transferor and does not include profits. In India, VAT got
introduced in year 2005.
It is a well known fact that VAT is payable on the goods & services all over the
world. This is because of the reason that they form an important part of
national Gross domestic products (GDP). VAT has been introduced in more than 130
countries world wide for more than three decades. This form of tax has been
introduced in India after many years. All sellers and service providers charge
the tax after they have availed input tax credit. The dealer chargers VAT on
full value of the goods which have been sold to the consumers. In the end of tax
period, he reduces the tax received on sales and the tax charged to him by the
dealers whom he had purchased the goods from and deposits the tax in government
treasury.
It is considered to be a multi-stage tax and the main aim is to avoid cascading
as it may have great impact on the price of goods. As it is a multi-staged tax,
it results in the high revenues to government. Under VAT, there will be no
exemption from making tax payments for goods and services. At every value
addition stage, the tax will be added and hence the consumers and manufacturers
are liable for paying VAT.
Revenue security- In VAT system, the
buyers at the final stage will have an interest in undervaluing the purchases.
This is because of the fact that the deduction system makes sure that buyers at
previous stages get the tax refunded on the items purchased by them. This is how
a tax lose can be minimized at the final stage.
Selectivity- VAT is applied to the
specific items or goods and services offered by business owners. It does not
cover capital goods due to the type of consumption.
It is a well known fact that in India, there are two reasons for introduction of
VAT. One is it will make a part of fiscal consolidation strategy at macro level
for the country. Secondly, it will help nation in International trade. If you
want to get more details about this form of tax, you can get in touch with tax
consultants.
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