VALUE ADDED TAX

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 purpose of VAT is to generate tax revenues to the government similar to the corporate income tax or
the personal income tax.

The value added to a product by or with 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.

Value-added taxation in India

The value added tax was introduced as an indirect tax into the Indian taxation system from 1 April 2005.
The existing General Sales Tax Laws were replaced with new Value Added Tax Acts and the VAT Rules
for proper administration. Haryana became the first State in the country that had adopted the taxation on
1 April 2003. Few states Gujarat, Rajasthan, Madhya
Pradesh,Chhattisgarh, Jharkhand, Uttarakhand and Uttar Pradesh have opted to stay out of VAT taxation
system during the initial introduction of VAT and have then adopted VAT at a later date. As of 2012, VAT
has been introduced in 33 States and UTs. [1][2]

Sales tax
Sales tax is levied at the time of the purchase of the products or services. The tax is easily calculated,
and the consumer knows very well how much he is going to pay for the tax. The amount of sales tax may
be calculated as a percentage of the taxable price of the sale. The tax is collected from the consumer by
the seller at the time of purchase. The seller at a later stage transfers the tax to the
responsible government agency. Sales tax is easy to calculate as they are charged on the final amount.
Sales taxes have stringent rules to follow. Ideally, these taxes would be difficult to avoid, have a high
compliance rate, and are easy to collect. But the situation is actually different. Sales tax has a very high
level of avoidance.
Sales tax is also a form of consumption tax. The current rate of sales tax in india is around 13%.

Difference Between VAT and Sales Tax

1.VAT is levied on both the producer and consumer while a sales tax is levied on only the end consumer.

2.VAT involves tricky accounting while sales tax involves simpler accounting.

3.VAT is applied at the various stages of production while sales tax is applied on the total value of the

purchase.

4.VAT efficiently avoids evasion of taxes while a sales tax is unable to deal with this.

 
 Goods and Services Tax (GST)

The Goods and Services Tax (GST) is a Value Added Tax (VAT) to be implemented in India,[1] the
decision on which is pending.[2] It will replace all indirect taxes levied on goods and services by the
Indian Central and State governments. It is aimed at being comprehensive for most goods and services.

India is a federal republic, and the GST will thus be implemented concurrently by the central and state
governments as the Central GST and the State GST respectively.[3] Exports will be zero-rated and imports
will be levied the same taxes as domestic goods and services adhering to the destination principle

Tax-Rate under the proposed GST

"World over, GST rates are typically between 16 per cent and 20 per cent. In India, it is likely to be the
same," CBEC Chairman Sumit D Majumdar said. The tax-rate under the proposed GST would come
down, but the number of assesses would increase by 5-6 times.

GST elsewhere
More than 150(J.K.MIttal 2010) countries have introduced GST in some form. It has been a part of the tax
landscape in Europe for the past 50 years and is fast becoming the preferred form of indirect tax in the
Asia Pacific region. It is interesting to note that there are over 40 models of GST currently in force, each
with its own peculiarities. While countries such as Singapore and New Zealand tax virtually everything at
a single rate, Indonesia has five positive rates, a zero rate and over 30 categories of exemptions.
 ADVANTAGES OF IMPLEMENTATION
OF GST/ why GST is important ?/ why
GST is needed ?
1.It will lead to a uniform tax on all goods and services and eliminate several other taxes like octroi, excise
duty , service tax and combining all of them into a single one.

2. the no of assesses under taxation scheme will increase by 5-6 times ( as predicted by the govrt
surveys ) which will lead to an increase in the taxation revenue for the govt and hence more expenditure
on investment and consequently growth in GDP.

3. A single tax will lead to decline in prices of several commodities in the market, reduction in price
disparity inter states of same commodity and bring parity and clarity in taxation structure.

4.a single tax will help in improving India’s image in eyes of foreign investors, making india a favourable
spot for foreign investment and boosting their spending and investment in India and hence our GDP.

5. It will be easier for the producer or distributor to pay only one tax instead of several and save their time
and efforts put in complicating managing of books of accounts.

6. It will also help in curbing tax evasion as sales tax is easy to evade while a value added tax which is
levied at each stage or at each process on the value added is not that much easy to evade.
 DISADVANTAGES ASSOCIATED WITH
GST
1. Since India follows dual govt system of both state and central, 2 GST rates will have to be
decided and it will be levied at 2 different points making it a complicated and hard process. Even
if the state and central decides to follow the same rate, tax will be collected at 2 points separatelt
by state and centre increasing complexity in the taxation system.
2. Many states fear loss in revenue by implementing GST which is true because not all states earn
their revenue on a proportionate basis and different factors like volume of transactions, stages in
manufacturing and distribution come into effect with different states having different.
3. It will be difficult to come to an agreement about a uniform GST rate among a central govt and
state govts due to Political parties politics in India and lack of cooperation between states under
control of different political parties too.
4. The current IT infrastructure in the country is not up to the level needed for efficient
implementation of GST nationwide.

Originally, GST was proposed to be introduced with effect from April 1, 2010. However, on account of a
difference of opinion amongst states, political compulsions, and insistence of many states on commitment
of the federal government to compensate for revenue loss, if any, and coverage of specified products like
petroleum, liquor, etc, GST could not be implemented even after extending the deadline. Even in 2013
there is no vision when GST would be introduced in the country.

A special purpose vehicle called the GST Network, headed by Nandan Nilekani, was formed which would
be responsible for implementing information technology infrastructure needed to roll out GST. Similarly, to
bring in enabling provisions in the Constitution of India, the Constitution (115th Amendment) Bill, 2011
has been introduced in parliament. 

In spite of parallel efforts of the federal government, there is a complete lack of consensus on various key
issues amongst different political parties which led to not passing of the constitutional amendment bill. 

It is high time political parties bridge their differences in the interest of the country and the federal
government takes firm steps and announce date for the implementation of GST whether all states are
ready to join or not.

History has proved that many countries have benefited from moving to a GST regime
Post elections, the implementation of GST should be on the priority list of the party forming the
government to remove uncertainty of taxation laws in the country and benefit from this dynamic tax
reform.

BIBLIOGRAPHY

1. Wikipedia
2. Business today
3. India Today