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VALUE ADDED TAX

VALUE ADDED TAX. INTRODUCTION. 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.

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VALUE ADDED TAX

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  1. VALUE ADDED TAX

  2. INTRODUCTION • 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. HISTORY • VAT was initiated first in Brazil in mid 1960’s, then in European countries in 1970’s 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, 2005. • 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 taxed @ 1% and Liquor @ 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. HOW VAT WORKS? • 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.112.50 which includes VAT of Rs.12.50. • He sells these goods at Rs.200+Rs.25(VAT). • At the end of tax period, he would pay Rs.12.50 in Government Treasury (Rs.25(output tax or VAT) collected from customer less Rs.12.50 paid on purchase of goods.

  5. Is VAT a new phenomenon? • 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. Pays purchase price which includes tax

  7. Does the consumer pay more tax under VAT?

  8. When inputs are purchased locally. Raw material attract Tax @4%

  9. ADVANTAGES OF VAT SYSTEM • 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. ADDITION METHOD • 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

  11. Invoice method or voucher method • 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

  12. FEATURES OF VAT • 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- • constitutes an important part, paid on purchase of goods from a taxable person within a state • Such input tax credit availed is utilized to pay output tax when such goods are sold as such or after further manufacturing. • Input tax credit shall be available in case of purchase of capital goods within Punjab. • 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.

  13. Continued… • 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.

  14. 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

  15. FEATURES OF PUNJAB VAT ACT,2005 • Scheme of levy of VAT • Rates of VAT • Registration • Tax- output tax and input tax • Input tax credit mechanism • Set off • Other key factors

  16. LIMITATIONS OF VAT

  17. PRESENTATION BY:SANDEEP KAURASSIST. PROF.GCCBA-42

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