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Fairness
Tax evasion will be reduced
Tax transparency
Higher tax revenue
Uniformity
Simpler
Eliminates multiple rate regime
Neutral
Stable source of revenue
Economy in exports
Floor rate
General rate of 12.5 per cent is too high
Classification of capital goods
Inclusion of capital goods and industrial inputs
as concessional rate
Applicability of VAT on MRP
Distortions due to concessions
General structure of India
Increase in compliance cost
Increase in working capital
Preference for consumption over production
Tax evasion
Demerits in general:
For complying with the VAT provision accounting cost
increases. The burden of this increase cost may not be
commensurate with the benefit to traders and small
firms.
Since VAT is imposed or paid at various stages and not
on last stage, it results in increase in working capital
requirement. In this way it is considered to be non
beneficial as compared to the single stage last point
taxation system
VAT is a form of consumption tax. Proportion of income
spent on consumption is larger in the case of poor, as
compared to that of rich. Thus VAT tends to be
regressive.
VAT increases administration cost to the State, as
number of dealers to be administered will go up
significantly.
Illustration-1:
PROCEDURES
Provisions pertaining to compulsory issue of
tax invoice, cash memo or bill:
The entire design of VAT with input tax credit is
crucially based on documentation of tax invoice,
cash memo or bill.
Every registered dealer, having turnover of sales
above an amount specified, shall issue to the
purchaser serially numbered tax invoice with the
prescribed particulars.
This tax invoice will be signed and dated by the
dealer or his regular employee, showing the
required particulars.
The dealer shall keep a counterfoil or duplicate
of such tax invoice duly signed and dated.
Advantages of CS:
It saves a lot of labor and effort in keeping records.
It simplifies calculation of tax liability of a dealer.
Tax rate is very low. Normally, it is 4% or less.
Not required to maintain any statutory records.
Disadvantages:
The dealer is not eligible to avail input tax credit.
Moreover, he/it cannot issue tax invoices in order to
pass on tax credit to the purchasers.
Who is eligible for composition scheme?
He is a registered dealer under VAT regulation of the
State;
He purchases and sells goods only within the State
His sales turnover for the immediately preceding
financial year does not exceed Rs. 50,00,000;
only
Who is not eligible?
A manufacturer or a dealer who sells goods in course of
inter-State trade or commerce;
A dealer who sells the goods in course of import into or
export out of territory of India;
A dealer transferring goods outside the State otherwise
than by way of sale or for execution of works contract;
Exercise of option:
At the time of the exercise of option, the dealer should
not have any stock of goods brought from other States
After exercise of option, he should not use any goods
brought from other States.
He should not claim any input tax credit on inventory
from the date on which he opts for Composition Scheme.
Classification of Commodities:
Under the VAT system covering about 550
goods, there will be only two basic VAT rates of 4
per cent and 12.5 %
There is a specific category of tax exempted
goods (like natural and unprocessed products in
unorganized sector, items which are legally
barred from taxation and items which have
social implications list of goods finalized by the
Empowered Committee formed for the purpose
of introduction of VAT)
Besides, a special VAT rate of 1 % is applicable
only for gold and silver ornaments etc.
Records to be maintained:
(a) Purchase account; (b) Sales Record; (c) VAT
VAT value
andfor
lease
Taxable
VAT transactions
A+B+
C
works contract