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. There have also been attempts to introduce Value Added Tax in USA, which however has preferred to retain the Retail Sales Tax system. Yet, those difficulties notwithstanding, it can be said that Value Added Tax system definitely has its advantages and is certainly recommended for most economies, particularly the developing ones.

Definition

“Value Added Tax is a tax on the value added at each stage of production and distribution process and can be aptly defined as one of the forms of consumption taxation since the value added by a firm represents the difference between its receipts and cost of purchased inputs.”

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Need for VAT

Value Added Tax is one of the most radical reforms that have been proposed for the Indian economy after years of political and economic debate. The reasons for advocating Value Added Tax is that it will replace a complicated tax structure that will also do away with the fraudulent practices. Following are some of the most important benefits if VAT is introduced.

• VAT will encourage and result in a better-administered system that will close avenues of tax evasion. The taxpayers will also be compelled to keep proper records of their sales and ...

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