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IN ONE THE MOST LARGE
SCALE REFORMS OF THE
COUNTRY¶S PUBLIC
FINANCES IN OVER PAST 50
YEARS, INDIA HAS FINALLY
AGREED THE LAUNCH OF ITS
MUCH DELAYED
r|   
ST
FROM 1 APRIL, 2005
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Necessity of Value Added Tax
‡ The General perception of the existing
single point sales tax system is that it is
highly complex with multiplicity of rates,
plethora of explanation, many rates in
some group of item, extensive use of
statutory forms, high and unrealistic quota
of assessment, loss of revenue on value
additions, tax rate war between States,
etc.
The consensus was that a new
system is needed and Value
Added Tax has emerged as a
principal instrument of taxing
domestic consumption world
wide during last four decades.
The basic advantages of Value
Added Tax can be stated as its
neutrality, transparency,
certainty and self policing
mechanism.
It is now in operation in more
than 100 Countries.
†HAT IS VAT
‡ Value Added Tax is a multi point sales tax
with set off for tax paid on purchases.
‡ It is basically a tax on the value addition
on the product.
‡ The burden of tax is ultimately born by the
consumer of goods.
‡ In many aspects it is equivalent to last
point sates tax.
‡ It can also be called as a multi point sales
tax levied as a proportion of Valued
Added.
IT IS A STATE VAT
‡ The discussion regarding the VAT and the
implementation which is being planned is only confined
to the State.
‡ There is no proposed Central VAT at present in the time
frame of 1.4.2003.
‡ All the States are drafting their separate Value Added
Tax Act and as per the present position.
‡ every States will have a separate VAT Act with different
provision not corresponding with each other.
‡ It can be stated that the proposed VAT Act is the primary
stage of VAT.
‡ It is proposed that there would be Two tax rate slabs on
which tax would be levied.
The first one would be 4% and would
covered all essential items. The second
one is 10% and all luxury items would
be covered.

In addition special rate slabs are also


proposed which are 1% for bullion and
jewellery, 20% for non essential goods
and exemption to certain goods like
agricultural produce etc.
Petroleum products are not
included in VAT rates.

Separate rate would be notified for


them.
Set off. (Input Credit)
‡ At present the set off would be available
on the goods locally purchased within the
State only.
‡ No set off would be available to the goods
purchased in the course of inter state
trade and commerce.
‡ It will be necessary to produce the tax
invoice to claim set off. The tax should
have been charged in the invoice.
Exempted Goods
‡ Some goods would be declared as
exempted by the State Government under
the proposed VAT Act. However the
present view as per guide lines issued by
the State Government are that no set off
would be allowed on the exempted goods.
It means that the tax suffered on the raw
material for manufacture of exempted
goods would not be refunded.
Manufacturer

‡ The manufacturer would be


required to purchase raw
material after paying full tax
on the rate applicable on
such material.
Unlike the present system
wherein the manufacturer can
purchase the goods at a
concessional rate of tax against
declaration form no declaration
form will be required to be
issued by the Manufacturer.
The input tax suffered by him would
be adjusted set off from the sale of
the finished product.
The tax adjustment of input credit
of the goods purchased within the
State would be available on the
sales made within the State and
also on the inter state sales subject
to the tax payable.
No adjustment would be
available of the input credit in
case of branch transfer,
consignment sale.
TRADER
‡ The trader would be required to
collect tax on the sales made by him
and the tax liability would be set
off/adjusted from the purchase/
input tax credit of the goods locally
purchased in that State.
ISSUE OF INVOICE
‡ Under the proposed Value Added Tax
Act issue of invoice would be
mandatory. No set off/input credit
would be allowed unless the original
tax invoice is produced wherein tax is
clearly charged separately in the
invoice.
Declaration Form
‡ USE OF DECLARATION FORM OF PURCHASE
OF GOODS ON CONCESSIONAL RATE OF TAX
ON NIL RATE OF TAX UNDER THE STATE ACT
†OULD BE COMPLETELY FINISHED.
‡ THERE †OULD BE NO REQUIREMENT OF
DECLARATION FORM UNDER THE PROPOSED
VALUE ADDED TAX. HO†EVER THE ROAD
PERMITS LIKE ST 18 A AND ST 18 C
DECLARATION FORMS †OULD CONTINUE.
‡ DECLARATIONS FORMS OF CST ACT †OULD
ALSO CONTINUE.
Accounting
‡ The basic account books required
for the purpose of VAT Act are
Purchase and Sale Register.
Both the registers would be the
basis on which the calculation of
payment of tax would be made.
The normal practice of entering
the gross value of Purchase bill
would be changed. The
assessee would be required to
enter the value of goods in the
goods A/c and the amount of
tax in the Tax A/c separately.
STOCKS
‡ Stock statement are required to
be furnished as prescribed for the
quarter ending and then monthly
from January to March.
‡ Set off of tax paid stocks would
be given.
Tax paid stocks as on march
ending would be the basis for
claiming set of under the new
Value Added Tax (VAT) Act.

However, no set off would be


available for the tax paid stock
purchased prior to 1.4.2005.
CAPITAL GOODS
‡ Set off would also be available on the
tax paid goods at the time of
purchase of capital goods under the
VAT Act.
‡ Basis of set off is yet to be declared.
However, it is presumed that set off
would be available within a span of 3
years from the date of commercial
production.
EXPORT
‡ Export would be zero rated. Tax paid on
raw material used in manufacture of goods
for export would be refunded by the State
Government in cash/adjustment.
‡ The exports would became more
competitive in the world market as there
would be no tax henceforth on raw
material used for manufacture of goods for
export.
REGISTRATION
‡ All importers, Manufactures,
Exporters and Dealers having CST
registration would be required to seek
mandatory registration under the new
VAT Act.
‡ The existing registered dealers are
required to fill a FACT SHEET as
notified by the department within a
stipulated time which is at present
15.2.2006 and then they would not be
required to seek fresh registration.
TYPES OF REGISTRATION
‡ There would be two types of registration. The
first is VAT dealers registration and the second
is composition scheme dealer registration.
‡ The dealers opting under composition scheme
would not be above to charge tax in the invoice
and he would pay lump sum fee as composition
amount.
‡ It is apparently for retail traders and the
expected limit of turn over for option under
composition scheme is maximum Rs. 15 lacs.
Security Amount
‡ Security amount for seeking registration is
likely to be increased many fold in VAT
Act. The security for registration under the
present act is Rs. 10,000.00

‡ Apart from it, the assessing authority


would have a right to seek additional
security equal to 25% of the tax liability.
Audit of Account
‡ Every dealer having a turn over of
over 40.00 lacs would be required to
get his account audited by a
chartered accountant and submit the
audit report within the stipulated time.
Failure to do so would attract penalty
proceeding.
†orks Contract and Leasing
‡ No clarification, provision or guide lines
had been issued by the department till
date on works contract and leasing
transaction.
‡ The continuation of existing composition
scheme or by what method they would be
taxed in future has not been informed.
SIMILARLY SMALL RETAIL
DEALERS †OULD BE
REQUIRED TO MAINTAIN
MORE ACCOUNTS OR PAY
COMPOSITION MONEY
†HICH CAN NOT BE
COLLECTED FROM THE
CUSTOMERS.
THE PRESENT PROVISION OF
CST AND VAT CAN NOT GO
TOGATHER. AFTER THE
ABOLITION OF CST THE DIRECT
MARKETING CONCEPT MAY
GAIN GROUND
THE NECESSITY OF HAVING
†AREHOUSE, GODO†NS
ETC. IN ALL STATES MAY
DECREASE OR FINISH
†HICH †OULD ADVERSELY
AFFECT THE TRADE AND
EMPLOYMENT OF THE
STATES.
opinions
apprehensions
and
reactions
IRATE TRADERS
CONFUSED COMPANIES
‡ AM I GAINING OR LOSING?
‡ ARE PRICES GOING UP OR DO†N
‡ THE ORIGINAL EQUIPMENT
MANUFACTURER CLAIMS VAT CREDIT
ON THE TAXES PAID TILL GOODS
REACH HIS PLANT.
‡ HIS SELLING PRICE †ILL INCLUDE
THE FULL VAT ON THE PRODUCT.
QUESTIONS
‡ †HAT †ILL BE THE FATE OF INPUT TAX
CREDIT?
‡ †HETHER THE SMALL DEALERS BE
BENIFITTED?
‡ IF THE INPUT IS USED PARTLY FOR MAKING
TAXABLE GOODS AND PARTLY FOR
EXEMPTED GOODS THEN?
‡ HO† THE INPUT TAX CREDIT TO BE
CLAIMED?
^ ^
‡ µ†e will wait for
the answers to
our queries¶

Jagdish Shettigar
» BJP Member
POLITICAL PARTIES
‡ ONLY IF THE TRADERS AGREE

»Mulayam Singh Yadav


»President
»Samajvadi Party
POLITICAL PARTIES

HANG ON TILL JULY

J. JAYALALITA
PRESIDENT
AIADMK
THE COUNTRY LIKE AMERICA
†HICH HAS SIMILAR FEDERAL AND
STATE LA†S/CONSTITUTION HAS
NOT IMPLEMENTED VAT.

IT NEEDS STUDY AS TO †HY A


DEVELOP AND ADVANCE
ECONOMY LIKE AMERICA HAS NOT
ADOPTED VAT
CONCLUDING
‡ VAT †OULD CHANGE THE NATURE OF
TRADE IN THE COMING YEARS, BUT
THE MEDIUM LEVEL OF TRADE THAT
IS C&F AGENTS, DISTRIBUTORS,
STOCKIEST ETC. †OULD FACE
PROBLEMS AS THE COMPANIES
†OULD REDUCED THE TIER OF
MARKETING.
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