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A report onValue Added Tax

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A report on Value Added Tax Submitted by: Alexander Varghese Kolath Vivek C. Nair Introduction Value Added Tax originated in France in 1954 and is under implementation in more than hundred countries. Value Added Tax is perceived by many as means to promote neutrality and uniformity of tax burden and to provide incentives for increased productivity and industrialization. The spread of VAT to the developed and the developing countries alike certainly, makes for an interesting study. Financial Times (London) too stressed the growing importance of VAT when it observed in its centennial review "The economic and technological changes of the second half of the century have made VAT the quintessential modern tax". It will not be an exaggeration if one were to say that the emergence of the VAT as an important and elastic source of revenue over the last four decades is unparalleled in the history of taxation. Despite the widespread proclamation of VAT, there have been difficulties in implementing VAT in its true spirit like in the case of Argentina, Brazil, Canada and India. VAT has been introduced in more than 120 countries - developed, developing and those economies, which are in transition. ...read more.


When the purchaser purchases the goods, he'll have an invoice which will state the price of the good as well as the VAT paid on it. The tax deducted will be only on the value added at each stage of production. When he sells the goods, he's given a discount on his VAT obligations that he has already met on the purchase of his inputs. Because an offset for input tax is not given without an invoice for purchase of an input, there is an incentive to demand invoices for any purchases made in the chain of production and distribution. This leads to self-assessment of tax by the tax payer himself. Each tax payer is given an 11 digit Tax Payer Identification number. This is used to make a central database of all the states. The database contains all information regarding the VAT paid on purchase of inputs and the amount to be refunded at the point of sale. In order for this to work, a central IT enabled system should be in place. The intra-state operations of the sales tax department have been computerized in many states and this network can be exploited to demat local statutory forms. ...read more.


In fact the new system actually ended up reducing the costs by eliminating cascading taxes to the tune of several billion dollars. Another reason for the delay was the wrangling over the compensation to be paid by the center for the revenue loss for states from the change over. The center has ensured that this will not be so and has assured compensation in case of deficits. If VAT system is adopted there would be no exemptions or incentives. This can adversely affect some business houses. To crown all this there was also political opposition fearing disfavor of the trading community and the resulting political fallout. VAT - the way forward In order to make the VAT a thorough success following could be few suggestions. * The deadline for all legislations and computerizations should be same across the states. * VAT should be implemented by all the states at the same time. * Laws regarding VAT should be uniform across all the states and there should be no disparity among the states. * There should be a monitoring mechanism at the central to overlook the new system. * A lot of changes have to be made in ancillary legislation (income tax, company law etc.) to ensure VAT compatibility. ...read more.

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