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Value Added Tax(VAT) is a tax on value added by any economic activity(like manufacturing, retailing etc.) VAT is collected in stages on transactions involving.

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Presentation on theme: "Value Added Tax(VAT) is a tax on value added by any economic activity(like manufacturing, retailing etc.) VAT is collected in stages on transactions involving."— Presentation transcript:

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2 Value Added Tax(VAT) is a tax on value added by any economic activity(like manufacturing, retailing etc.) VAT is collected in stages on transactions involving sales of goods within a particular stage Input tax and output tax Levied on sales of all taxable goods. Multi point taxation system

3 VAT was initiated first in Brazil in mid 1960s, then in European countries in 1970s and subsequently introduced in about 130 countries. VAT system was first introduced by the Govt. of India from about two decades. At the State level it was introduced in 20 states w.e.f. April, VAT system in india had proposed two basic rates of VAT i.e. 4% for some of the essential commodities and 10% for all other goods. However, items like Gold, Silver to be 1% and 20%. VAT is already in India for the past 25 years levied at manufacturing stage in the form of MODVAT/CENVAT. CENVAT is a Central levy, the Vat is a state levy and therefore can be called as State VAT.

4 Taxable person selling goods collects tax on price at which he sells the goods whether to a consumer or to a person registered under the Act. At the end of a tax period, he reduces from the tax so collected by him, the input tax that he has paid to the taxable person from whom he purchased goods during the tax period, and deposits the balance in the Govt. Treasury. EXAMPLE:- Dealer A purchases goods for Rs.100+Rs.12.50=Rs which includes VAT of Rs He sells these goods at Rs.200+Rs.25(VAT). At the end of tax period, he would pay Rs in Government Treasury (Rs.25(output tax or VAT) collected from customer less Rs paid on purchase of goods.

5 No, the system was introduced in a modified form under Excise law in 1986 and is now is full-fledged system known as Central Value Added Tax(CENVAT).

6 Collects tax on sale price at first point of sale. Manufacturer Collects tax on sale price, claims deduction for tax paid on purchase and deposits net tax in Govt. Treasury – effictively payment of tax is equal to tax on value addition Manufacturer Collects tax on sale price, claims deduction for tax paid on purchase and deposits net tax in Govt. Treasury – effictively payment of tax is equal to tax on value addition Wholesaler consumer Pays purchase price which includes tax

7 S.N O. TRANSACTIONSOUTPUT TAX INPUT TAX CREDIT VAT PAYABL E 1A raw material importer in Punjab sells the goods to a Manufacturer 1 in Punjab for Rs VAT rate is 12.5%. Therefore his tax liability is Rs 125. Importer will not get any Input tax credit as he has not paid any VAT in punjab on his purchases Manufacturer 1 sells the goods to Manufacturer 2 in Punjab for Rs He will pay tax on Rs 1800 and get Input tax credit for the tax already paid by him on purchase(125) Manufacturer 2 sells the goods to Wholesaler/Retailer for Rs2000. He will pay tax on Rs 2000 and get input tax credit for the tax already paid by him on purchase(225) Wholesaler/ Retailer sells to the consumer at a price of Rs 220. He will pay tax on Rs 2200 and get input tax credit for the tax already paid by him on purchase (Rs.250) Total275

8 S.N O. TRANSACTIONSOUTPUT TAX INPUT TAX CREDIT VAT PAYABL E 1A raw material supplier in Punjab sells the goods to a Manufacturer 1 in Punjab for Rs VAT rate is 4%. Therefore his tax liability is Rs 40. The raw material supplier will not get any Input tax credit as he has not paid any VAT in punjab on his purchases 400 2Manufacturer 1 sells the goods to Manufacturer 2 in Punjab for Rs He will pay tax on Rs 1800 and get Input tax credit for the tax already paid by him on purchase(40) Manufacturer 2 sells the goods to Wholesaler/Retailer for Rs2000. He will pay tax on Rs 2000 and get input tax credit for the tax already paid by him on purchase(225) Wholesaler/ Retailer sells to the consumer at a price of Rs 220. He will pay tax on Rs 2200 and get input tax credit for the tax already paid by him on purchase (Rs.250) Total275

9 Transparent system Self assessment no lock up of funds in taxes No cascading of taxes Self policing mechanism Competitive advantage for exporters Fewer rates of tax

10 Methods of computation of VAT Addition method Invoice method Subtraction method

11 Value added= factor payment + profit Factor payments= rent/depreciation of building, hire charges, interest on capital, wages and salaries etc Eg. Refer book pg-0.7 example 4

12 VAT payable= VAT on sales – VAT on inputs Refer book page-0.8 Example-5 SUBTRACTION METHOD Value added= sale – purchases Refer book page=0.8 example-6

13 Maximum rate of VAT-30% In case of declared goods-5% Methods of imposing and collecting VAT:- Tax credit or invoice method Subtraction method Addition method In India, tax credit method is followed Input Tax Credit- o constitutes an important part, paid on purchase of goods from a taxable person within a state o Such input tax credit availed is utilized to pay output tax when such goods are sold as such or after further manufacturing. o Input tax credit shall be available in case of purchase of capital goods within Punjab. o Capital goods mean any plant, machinery, equipment including equipment for pollution control, quality control, laboratory and cold storage, used for manufacturing, processing, packing of taxable goods for sale.

14 Present VAT is state level, future goal is to introduce Central VAT. Only taxable person holding valid VAT registration can claim input tax credit on the basis of Original VAT invoice received from seller. Onus to prove shall lie on claimant. in case original VAT invoice is lost or mutilate, taxable person shall apply to the sales tax officer for claiming credit on duplicate copy of invoice. Application shall be accompanied by:- Duplicate copy of invoice Indemnity bond for an amount equal to input tax credit claimed under such invoice.

15 Tax on inputs can be utilized for: 1. payment of output tax on local sales 2. inter state sales 3. any outstanding demand for tax or penalties 4. balance if any, carried forward or can be taken as refund. Input tax credit is non-transferable VAT classifies dealers into two categories: 1. dealers registered under VAT are taxable persons 2. Dealers registered under turnover tax are registered persons. For small traders whose turnover during any financial year does not exceed 50 lacs, nominal 2% tax is payable on the total turnover, without availing the benefit of input tax credit. This tax is called turnover tax(TOT). Government cannot impose TOT more than 2% of value of goods

16 Scheme of levy of VAT Rates of VAT Registration Tax- output tax and input tax Input tax credit mechanism Set off Other key factors

17 1. IMPACT ON GDP RATIO2. LESS REVENUE TO GOVT.3. COMPLEXITY IN REFUND PROCEDURE4. MULTIPLE RATES OF TAX5. MAINTENANCE OF DIFFERENT RECORDS 6. CONFLICTION

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