INTRODUCTION

Value Added Tax (VAT) is a tax that is charged on most goods and services that VAT-registered businesses provide in the Federation. It is also charged on goods and some services that are imported from countries outside the Federation, and brought into St. Kitts and Nevis.

MEANING
VAT is a tax charged on most business transactions in St. Kitts & Nevis. Businesses add VAT to the price they charge when they provide goods and services to:

Business customers - for example a stationery store purchases in bulk from a wholesale business will be charged VAT on the prices the items once they are taxable.

Individual customers (consumers) for example consumers purchase groceries from a supermarket will be charged VAT on the items purchased as long as they are taxable.

Government customers for example government departments will be charged VAT on the items they purchase from businesses once items are taxable.

A value added tax (VAT) is a form of consumption tax. From the perspective of the buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the value added to a product, material, or service, from an accounting point of view, by this stage of its manufacture or distribution. The manufacturer remits to the government the difference between these two amounts, and retains the rest for themselves to offset the taxes they had previously paid on the inputs.

The value added to a product by a business is the sale price charged to its customer, minus the cost of materials and other taxable inputs. A VAT is like a sales tax in that ultimately only the end consumer is taxed. It differs from the sales tax in that, with the latter, the tax is collected and remitted to the government only once, at the point of purchase by the end consumer. With the VAT, collections, remittances to the government, and credits for taxes already paid occur each time a business in the supply chain purchases products.

HISTORY
Maurice Laur, Joint Director of the France Tax Authority, the Direction gnrale des impts, was first to introduce VAT on 10 April 1954, although German industrialist Dr. Wilhelm von Siemens proposed the concept in 1918. Initially directed at large businesses, it was extended over time to include all business sectors. In France, it is the most important source of state finance, accounting for nearly 50% of state revenues. Personal end-consumers of products and services cannot recover VAT on purchases, but businesses are able to recover VAT (input tax) on the products and services that they buy in order to produce further goods or services that will be sold to yet another business in the supply chain or directly to a final consumer. In this way, the total tax levied at each stage in the economic chain of supply is a constant fraction of the value added by a business to its products, and most of the cost of collecting the tax is borne by business, rather than by the state. Value added taxes were introduced in part because they create stronger incentives to collect than a sales tax does. Both types of consumption tax create an incentive by end consumers to avoid or evade the tax, but the sales tax offers the buyer a mechanism to avoid or evade the taxpersuade the seller that the buyer is not really an end consumer, and therefore the seller is not legally required to collect it.
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The burden of determining whether the buyer's motivation is to consume or re-sell is on the seller, but the seller has no direct economic incentive to collect it. The VAT approach gives sellers a direct financial stake in collecting the tax, and eliminates the problematic decision by the seller about whether the buyer is or is not an end consumer.

GOVERNING BODIES OF VAT

COMISSIONERS AND OTHER OFFICERS

1. For carrying out the purposes of this Act, the State Government may appoint an officer to be the Commissioner and such other officers to assist him as it may deem fit. 2. The Commissioner shall have jurisdiction over the whole of the State and shall have all the powers and perform all the duties conferred or imposed upon him by or under this Act. All other officers appointed, under sub-section (1), shall exercise such powers as may be conferred upon them by the State Government. 3. Every officer appointed under sub-section (1), to assist the Commissioner, shall exercise his powers, subject to the general superintendence and control of the Commissioner. 4. The officers appointed under sub-section (1), shall be deemed to be public servants within the meaning of section 21 of the Indian Penal Code (Central Act 45 of 1860).

ACT DETAILS
VAT GLOSSARY
These are some plain English definitions of common VAT terms that IRD uses:

Acquisition: an asset bought or obtained. Goods brought into the St. Kitts & Nevis from other EU countries

Company: corporate or unincorporated body, recognized under any law enforced in St. Kitts & Nevis, created for profit or non-profit purposes excluding a partnership or trust

Exports: goods sent outside St. Kitts & Nevis to another country Import: bringing or causing to be brought into St. Kitts & Nevis. Services supplied to a non-resident of St. Kitts & Nevis or by a resident from a business carried on by the resident out St. Kitts & Nevis as long as the services are not consumed by the registered person making taxable supplies.

Imports: goods brought into St. Kitts & Nevis from another country Input Tax: the VAT you pay on your purchases or imports Output Tax: the VAT you charge on your sales Place of Supply: the place where good are delivered by a supplier to the recipient or made available by the supplier to the recipient or if the delivery involves goods being transported and the place where goods are when transportation commences

Self-Billing: your customer issues your VAT invoice and sends a copy to you with their payment

Supply: selling or otherwise providing goods or services, including barter and some free provision. When exclusive ownership of goods passes from one person to another

Taxable Person: any business entity that buys or sells goods or services and is required to be registered for VAT - this includes individuals, partnerships, companies, clubs, associations and charities

Taxable Supplies: all goods and services sold or otherwise supplied by a taxable person which are liable to VAT at the standard, reduced or zero rate

Taxable Turnover: the total value - excluding VAT - of the taxable supplies you make in the ST.KITTS & NEVIS (excludes capital items like buildings, equipment, vehicles or exempt supplies)

Tax Period: the period of time covered by your VAT Return which is one calendar month

Time of Supply: a supply of goods or services occurs on the earliest of the following: goods or services delivered or received, an invoice issued by supplier or consideration is received.

ADVANTAGES OF VAT
In the advantages part we will first look after the broad coverage of VAT in the Indian market. Then we will consider the level of security the Indian VAT is having on our revenues. Obviously the selection of items to be covered by VAT in India will be given a bullet to think upon and at last we will check out the co-ordination VAT in India will be having with our existing direct tax system. 1) Coverage the entire retail If the tax is carried through the retail level, it offers all the economic advantages of a tax that includes price within its scope, at the same time the direct payment of the tax is spread out and over a large number of firms instead of being concentrated on particular groups, such as wholesalers or retailers. If retailers do evade, tax will be lost only on their margins because customers that are registered firms gain nothing if their suppliers fail to collect tax, except delay in payment; they will pay more to the government themselves. Under other forms of
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sales tax, both seller and customer gain by evading tax. One particular advantage is that of the widening of the tax base by bringing all transactions into the tax net. Specifically, VAT gives the new government the opportunity to bring back into the tax system all those persons and entities who were given tax exemptions in one form or another by the previous regime. 2) Revenue security VAT represents an important instrument against tax evasion and is superior to a business tax or a sales tax from the point of view of revenue security for three reasons. In the first place, under VAT it is only buyers at the final stage who have an interest in undervaluing their purchases, since the deduction system ensures that buyers at earlier stages will be refunded the taxes on their purchases. Therefore, tax losses due to undervaluation should be limited to the value added at the last stage. Under a retail sales tax, on the other hand, retailer and consumer have a mutual interest in underdeclaring the actual purchase price. Secondly, under VAT, if payment of tax is successfully avoided at one stage nothing will be lost if it is picked up at a later stage; and even if it is not picked up subsequently, the government will at least have collected the VAT paid at stages previous to that at which the tax was avoided; while if evasion takes place at the final stage the state will lose only the tax on the value added at that point. If evasion takes place under a sales tax, on the other hand, all the taxes due on the product are lost to the government. A significant advantage of the value added form in any country is the cross-audit feature. Tax charged by one firm is reported as a deduction by the firms buying from it. Only on the final sale to the consumer is there no possibility of cross audit. Cross audit is possible with any form of sales tax, but the tax-credit feature emphasises and simplifies it and is likely to make firms more careful not to evade because they know of the possibility of cross check. 3) Selectivity
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VAT may be selectively applied to specific goods or business entities. We have already addressed essential goods and small business. In addition the VAT does not burden capital goods because the consumption-type VAT provides a full credit for the tax included in purchases of capital goods. The credit does not subsidize the purchase of capital goods; it simply eliminates the tax that has been imposed on them. 4) Co-ordination of VAT with direct taxation Most taxpayers cheat on their sales not to evade VAT but to evade personal and corporate income taxes. The operation of a VAT resembles that of the income tax more than that of other taxes, and an effective VAT greatly aids income tax administration and revenue collection. It is interesting to note that when Trinidad and Tobago set out to introduce VAT it chose one of its top income tax administrators as the VAT Commissioner. It must be stressed once again that if properly implemented VAT can ultimately lead to a reduction in overall rates of tax. Revenues will not be sacrificed but would in fact be enhanced as a consequence of the broadened tax base.

DISADVANTAGES OF VAT
The main disadvantages which have been identified in connection with the Value Added Tax are: 1) VAT is regressive It is claimed that the tax is regressive, ie its burden falls disproportionately on the poor since the poor are likely to spend more of their income than the relatively rich person. There is merit in this argument, particularly if it attempts to replace direct or indirect taxes with steep, progressive rates. However, observation from around the world and even Guyana has shown that steep tax rates lead to evasion, and in the case of income tax act as a disincentive to effort. Further, there is now a tendency in most countries to reduce this progressivity of taxes
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as has been done in Guyana where a flat rate of income tax has been introduced. In any case VAT recognises and makes room for progressivity by applying no or low rates of tax on essential items such as food, clothes and medicine. In addition it allows for steep rates of tax on luxury items, although this can create problems for administration and open opportunities for evasion by way of deliberate misclassification, a problem incidentally not peculiar to VAT, and which takes place extensively in the area of customs duties. 2) VAT is too difficult to operate from the position of both the administration and business. (a) The administration It is often argued that VAT places a special burden on tax administration. However, it is worth noting that wherever VAT was introduced one of its effects was the rationalisation and simplification of the previous indirect tax system and its administration. Each of the previous indirect taxes such as customs duties, purchase tax and excise duties replaced by VAT had its own rate structure as well as a different tax base and separate administrative procedure. The consolidation and incorporation of numerous indirect taxes into the VAT would simplify the rate structure, tax base, and administration of the indirect tax system, thereby eliminating the overlapping auditing practices that had plagued those systems. In addition, the abolition of a number of alternative indirect taxes releases experienced personnel to focus on a single tax. It also means reduction in the number of forms used, legislation to be applied and returns and accounts with which the business person has to contend. (b) Business It is true that the VAT is collected from a larger number of firms than under any form of income tax or single state sales tax; to the typical smaller firms the complexities of the tax and the need for more extensive records (for example, to justify deductions) are likely to prove serious. However, it is often overlooked that businesses already function with considerable
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administrative responsibility for a number of laws including the National Insurance Act and the Income Tax Act. Under the Income Tax (Accounts and Records) Regulations of 1980 every person, without exception is required to maintain detailed and extensive records of all its transactions. Compliance with this will certainly ensure compliance with VAT regulations, and since there is an actual benefit to be derived from accounting for VAT paid on input there is an incentive for proper record-keeping. As we have noted before, VAT also allows for the exemption of small businesses from the system. Under any form of sales taxation, small businesses have to be granted special treatment because of their inability to cope with the requirements of keeping adequate records which larger enterprises can handle at a reasonable cost. The intent of the special treatment is to reduce the administrative burden on small enterprises, but not the taxes that normally would be charged on the goods and services they supply. The revenue loss at the final link in the commercial cycle is limited only to the value added at that stage ,whereas in the case of income tax or sales tax the entire tax is lost. To recover the loss from exemptions, a flat tax on turnover may be applied. In the larger businesses with proper staff and computers, the task is really one of double entry book-keeping and any additional work is hardly ever noticed. 3. VAT is inflationary Some businessmen seize almost any opportunity to raise prices, and the introduction of VAT certainly offers such an opportunity. However, temporary price controls, a careful setting of the rate of VAT and the significance of the taxes they replace should generally ensure that there is no increase if any in the cost of living. To the extent that they lead to a reduction in income tax, any price increases may be offset by increases in take-home pay. In any case, any price consequence is one time only and prices should stabilise thereafter. 4. VAT favours the capital intensive firm
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It is also argued that VAT places a heavy direct impact of tax on the labour-intensive firm compared to the capital- intensive competitor, since the ratio of value added to selling price is greater for the former. This is a real problem for labour-intensive economies and industries.

IMPLEMENTATION
The standard way to implement a value added tax involves assuming a business owes some fraction on the price of the product minus all taxes previously paid on the good. By the method of collection, VAT can be accounts-based or invoice-based. Under the invoice method of collection, each seller charges VAT rate on his output and passes the buyer a special invoice that indicates the amount of tax charged. Buyers who are subject to VAT on their own sales (output tax), consider the tax on the purchase invoices as input tax and can deduct the sum from their own VAT liability. The difference between output tax and input tax is paid to the government (or a refund is claimed, in the case of negative liability). Under the accounts based method, no such specific invoices are used. Instead, the tax is calculated on the value added, measured as a difference between revenues and allowable purchases. Most countries today use the invoice method, the only exception being Japan, which uses the accounts method. By the timing of collection, VAT (as well as accounting in general) can be either accrual or cash based. Cash basis accounting is a very simple form of accounting. When a payment is received for the sale of goods or services, a deposit is made, and the revenue is recorded as of the date of the receipt of fundsno matter when the sale had been made. Cheques are written when funds are available to pay bills, and the expense is recorded as of the cheque dateregardless of when the expense had been incurred. The primary focus is on the amount of cash in the bank, and the secondary focus is on making sure all bills are paid. Little effort is made to match revenues to

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the time period in which they are earned, or to match expenses to the time period in which they are incurred. Accrual basis accounting matches revenues to the time period in which they are earned and matches expenses to the time period in which they are incurred. While it is more complex than cash basis accounting, it provides much more information about your business. The accrual basis allows you to track receivables (amounts due from customers on credit sales) and payables (amounts due to vendors on credit purchases). The accrual basis allows you to match revenues to the expenses incurred in earning them, giving you more meaningful financial reports.

VAT RATES
Scheme of levy of VAT
Earlier, sales tax was being levied at a single point in the supply chain in Punjab (the State). Value Added Tax (VAT) is levied at every stage of sale in the supply chain within the State and simultaneously, tax paid at earlier stage is allowed as Input Tax Credit, which is deductible from tax payable at subsequent stage. The Act applies to sale, lease, hire purchase and works contracts. Under VAT regime, in order to provide relief to small traders from VAT, a scheme of turnover tax (TOT) has been introduced for these traders. Under this scheme, a trader having gross turnover between Rs 5-50 lacs can opt for this simplified system of paying tax at notified rate not exceeding 2% on the taxable turnover. Currently, TOT rate has been notified at 1%.

2.

Rates of VAT

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Most of the goods fall in the 4% and 12.5% rate slab. Exports are zero-rated i.e. no tax is chargeable on exports but tax paid on purchase of goods for exports is allowed as credit which could be utilized for payment of VAT or could be claimed as refund, in case there is no tax liability. Precious metals, jewellery thereof and precious stones attract VAT rate of1%. A few commodities have special rates of 8.8%, 20%, 22%, and 27.5% . List of goods that fall under each of the above categories is provided in the Schedules attached to the Act.

3.

Registration
Persons liable to pay tax under the Act would either have a VAT or a TOT registration status. A person registered under VAT is referred to as Taxable Person and a person registered under TOT is referred to as Registered Person. The registration number granted to person registered for VAT is referred to as VRN/TIN and registration number granted to person registered for TOT is referred to as TRN.

In addition to the regular registration, the Act allows a person to take voluntary registration for VAT, provided his turnover is above the specified threshold. Casual traders and persons dealing exclusively in tax-free goods are exempted from registration. Under the VAT system covering about 550 goods, there will be only two basic VAT rates of 4% and 12.5%, plus a specific category of tax-exempted goods and a special VAT rate of 1% only for gold and silver ornaments, etc. Thus the multiplicity of rates in the existing structure will be done away with under the VAT system.

Under exempted category, there will be about 46 commodities comprising of natural

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and unprocessed products in unorganized sector, items which are legally barred from taxation and items which have social implications. Included in this exempted category is a set of maximum of 10 commodities flexibly chosen by individual States from a list of goods (finalized by the Empowered Committee) which are of local social importance for the individual States without having any inter-state implication?

The rest of the commodities in the list will be common for all the States. Fewer than 4% VAT rate category, there will be the largest number of goods (about 270), common for all the States, comprising of items of basic necessities such as medicines and drugs, all agricultural and industrial inputs, capital goods and declared goods. The schedule of commodities will be attached to the VAT Bill of every State.

The remaining commodities, common for all the States, will fall under the general VAT rate of 12.5%. In terms of decision of the Empowered Committee, VAT on AED items relating to sugar, textile and tobacco, because of initial organizational difficulties, will not be imposed for one year after the introduction of VAT, and till then the existing arrangement will continue. The position will be reviewed after one year.

ITEMS COVERED UNDER VAT 550 items covered 270 items of basic needs, like medicine, drugs, agro & industrial inputs, capital & declared goods 4% VAT Tea-producing states Petrol, diesel, liquor, Sugar, textile &
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Rest 12.5% VAT. Gold & silver jewellery - 1%

options either percentage VAT

lottery not included *

tobacco excluded for one year

Traders with turnover of less than 500,000 rupees are exempt from the new tax.

Note : * Some states like Delhi have imposed VAT on diesel at 20%, which is higher than the 12% sales tax charged earlier. Similarly, Delhi imposed VAT on LPG at 12.5%, which is also higher than the previous sales tax rate of 8 percent.

All business transactions carried on within a State by individuals, partnerships, companies etc. will be covered by VAT.

"More than 550 items would be covered under the new Indian VAT regime of which 46 natural and unprocessed local products would be exempt from VAT", a PTI report quoted West Bengal Finance Minister and VAT panel chairman Asim Dasgupta as saying.

About 270 items including drugs and medicines, all agricultural and industrial inputs, capital goods and declared goods would attract four per cent VAT in India.

The remaining items would attract 12.5 per cent VAT. Precious metals like gold and bullion would be taxed at one per cent.

Considering the difficulties faced by the tea industry, it was decided that teaproducing states would be given an option to levy 12.5 per cent or four per cent subject to review in 2006. Petrol and diesel would be kept out of VAT regime in India, which covers only marketable items.
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Dasgupta was quoted as saying that the panel was yet to take a view on CNG. Following opposition from some of the states, it was decided that states would have option to either levy four per cent or totally exempt food grains but it would be reviewed after one year. Three items - sugar, textile and tobacco - covered under Additional Excise Duties, will not be under VAT regime for one year but the existing arrangement would continue. The Indian VAT panel relaxed the threshold limit for traders coming under VAT regime from Rs 5-50 lakh of turnover from the previous stance of Rs 5-40 lakh.

RATES OF VAT
The VAT as proposed provides for a standard rate of fifteen percent (15%), a reduced rate for hotel accommodation and dive activity of ten percent (10%), and a rate of zero percent (0%) for certain goods and services. Therefore, consumers are likely to experience a reduction in the price of many items especially where the VAT would be lower than the GCT it replaced.

METHODS OF CALCULATING VAT

There are various ways to calculate value added tax. Value-added tax, or VAT, is a surcharge assessed, usually by the government, on sales of consumer products. It not used in the United States, but is found in many countries of the European Union and elsewhere. If you travel abroad, you may find yourself trying to figure the actual price of an item if the VAT is not included. The VAT is refundable on some purchases if you are not a resident of the nation. This means you can calculate the VAT on your items and ask for a refund. These

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transactions generally start at customs when you leave the country, so save your receipts and pick up a form when you depart. 1. Calculate VAT Simply
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The simplest way to calculate the VAT on a purchase is to multiply the price of the item by the rate of the VAT and add the total to the price of the item. For instance, if you are in England and wish to buy a sweater for 150 pounds, and the VAT is 18 percent, the VAT is 27 pounds (150 times 0.18), so the total price would be 177 pounds.

Calculate VAT by Combining Price and VAT

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You can also calculate the total price of an item in one step by multiplying it by 1 plus the percentage of the VAT. Taking the example above, if we multiply the price of the items (150 pounds) by 1 plus the VAT percentage (1 + 0.18, or 1.18), we get the same result, a final price of 177 pounds.

Calculate VAT from Total Price

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You can also work backward from the final price to figure the VAT. This can be helpful if the VAT is not broken out on your receipt, or if it was included in the price and you want it refunded to you. You must know the VAT rate for the country to do this calculation. In this case, you take the final cost of the item and divide it by 1 plus the VAT rate, then subtract that from the total cost to get the VAT paid. Using the same example, let's say you paid 177 pounds for a sweater. Divide 177 by 1.18, yielding 150, and subtract that from the full price (177) to get 27 pounds -- the amount of VAT

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PROCEDURE TO FILE VAT e-RETURNS THROUGH CDs

All the VAT/CST returns forms in MS Excel format can be downloaded from the website. All columns of the return in form VAT-15, VAT-17, Form-I and Lists in Form VAT-18, VAT-19, VAT-23 & VAT-24 should be filled correctly as prescribed under VAT- Rules mentioned on the website. No incomplete return shall be accepted at Department of Excise & Taxation, UT, Chandigarh. For VAT Returns : Need to fill VAT15,VAT 23 and Vat 24 in MS Excel format For CST Returns: Need to fill Form I, VAT 18 and Vat 19 in MS Excel format

Once the return forms are filled please save them with following file names:

Return Forms Form I

File Name

Instructions

FORMI(CH).xls

Form I Instructions

VAT 18

VAT18(CH).xls

VAT 18 Instructions

VAT 19

VAT19(CH).xls

VAT 19 Instructions

VAT 15

VAT15(CH).xls

VAT 15 Instructions

VAT 23

VAT23(CH).xls

VAT 23 Instructions

VAT 24

VAT24(CH).xls

VAT 24 Instructions

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Thereafter, prepare a non-editable CD of your completely filled return forms for one return period and mention the following information on CD with the permanent marker:
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Return Period VAT/CST TIN Signature

For every return period, separate CD needs to be submitted. Submit the CD to the ETO Incharge of your ward along with their hardcopies.

FINDINGS
Here in this project we study about advantages , disadvantages, meaning, rates of vat, methods of vat etc. we can say that like other taxes vat is important source of income to government . return of vat can also be done through cds, and the return con be monthly, quarterly or annually. Every person pays it indirectly as it is a indirect tax. Thus, here by I conclude that VAT will bring higher levels of efficiency in the tax system, thereby creating a new culture of voluntary compliance amongst tax payers.

CONCLUTION
VAT as proposed is intended to revolutionize our tax system, be responsive to economic activity, and make a real contribution to nation building. It is our belief that VAT will bring higher levels of efficiency in the tax system, thereby creating a new culture of voluntary compliance amongst tax payers.

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BIBLIOGRAPHY

Book----V.K. Sareen, Ajay Sharma, INDIRECT TAX LAWS, Kalyani Publishers, 2012 Internet--- www.google.com , www.wikipedia.com

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ANNEXURE

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