PROJECT REPORT ON “MVAT & GST” MASTER OF COMMERCE ACCOUNTANCY SEMESTER IV 2016-2017
SUBMITTED BY AASHISH GAUD Ro No! " #7 UNDER THE GUIDANCE OF ASST PROF! ANURADHA PARMAR!
NANJI BHAI $HIMJI BHAI THA$$AR THANE CO%%EGE AFFI%IATED TO UNIVERSITY OF MUMBAI SHETH J!T!T!CO%%EGE J!T!T!CO%%EGE OF ARTS THANE '()
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Sheth T.J. Education Society’s Society’s,, SHETH N.K.T.T. COLLEGE OF COMMERCE & SHETH J.T.T. COLLEGE OF RTS, THNE !"# CERT$F$CTE OF %ROJECT "ORK This is to ceti'y that, Ku(a. Ku(a. ashish ashish Gaud Gaud M.Co( M.Co( !ccountancy !ccountancy## Se(este) Se(este)$* $*
Ro++ No- No-
has undeta/e undeta/en n &
co(0+eted the 0o1ect tit+ed 2M*T & GST3 duin4 the acade(ic yea 5678)7 unde the 4uidance 4uidance o' ss sstt %o'. N9R:H N9R:H %RMR %RMR su;(itted su;(itted on
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'u+'i++(ent o' the cuicu+u( o' MSTER OF COMMERCE 9N$*ERS$T= OF M9M>$. This is a ;ona'ide 0o1ect ?o/ & the in'o(ation 0esented is tue & oi4ina+ to the ;est o' ou /no?+ed4e & ;e+ie'.
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CO9RSE COOR:$NT COOR:$N TOR OR
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This 0o1ect ;eas a++ those ?ho diect+y o indiect+y he+0ed and eAtended thei /ind su00ot in co(0+etin4 this 0o1ect. t the ti(e o' (a/in4 this e0ot $ eA0ess (y sincee 4atitude to SST %ROF. N9R:H %RMR !intena+ 0o1ect 4uide# 'o 0oBidin4 stea(ed 4uide+ines since ince0tion ti++ the co(0+etion o' 0o1ect. $ (et duin4 the couse o' this 0o1ect, 0 o1ect, 'o thei su00ot and 'o 0oBidin4 Ba+ua;+e in'o(ation ?hich he+0 (e to co(0+ete this 0o1ect success'u++y. success'u++y. t this (o(ent $ a+so a+(i4hty God 'o the ;+essin4 sho?ed u0on (e, (y 0aents 'o thei su00ot and cae and a+so (y 'iends 'o thei Ba+ua;+e Su44estions. This 0o1ect e0ot is a co++ectiBe e''ot o' a++ and $ sincee+y e(e(;e and ac/no?+ed4e a++ o' the( 'o thei eAce++ent eAce ++ent he+0 and assistance thou4hout the 0o1ect.
Couse na(e M.Co( !Se(este)$ !Se (este)$*# *# Co++e4e na(e Sheth N.K.T.T. Co++e4e o' Co((ece & Sheth J.T.T. Co++e4e o' ts, Thane. 9niBesity Mu(;ai 9niBesity
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:ECLRT$ON
$, SH$SH G9: hee;y dec+ae that the 0o1ect e0ot entit+e 2M*T & GST3 unde 4uidance o' SST %ROF. N9R:H %RMR su;(itted in 0atia+ 'u+'i++(ent o' the :e4ee o' M.Co(!ccountancy# to Mu(;ai 9niBesity is (y oi4ina+ ?o/.
Si4natue :ate < < 567 %+ace Thane
INDEX OF CONTENT 4 | Page
Sr. No.
Title
Page No.
1.
What is VAT?
06
2.
Diference et!een VAT"#ST
0$
3.
VAT efect on in%ation
11
4.
VAT efect on &cono'ic (ro!th
14
).
A*+antages
16
6.
Vat in ,aharashtra
1$
-.
egistration in /n*er VAT
22
$.
&laining VAT
2-
.
#alc/lating Ta iailit
33
10.
Section52 &ecting S/''ar
36
11.
e+ie! o iterat/re
3-
12.
Val/e a**e* Ta
40
13.
(oo*s " Ser+ices Ta 'o*el or 7n*ia
)2
14.
#oncl/sion
)$
1).
eerences
60
W8AT 7S Val/e A**e* Ta?
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Value Added Tax is a broad-based commodity tax that is levied at multiple stages of production. The concept is akin to excise duty paid by the manufacturer who, in turn, claims a credit on input taxes paid. Excise duty is on manufacture, while VAT is on sale and both work in the same manner, according to the white paper on VAT released by finance minister hidambaram. The document was drawn up after all states, barring !", were prepared to implement VAT from April.
#t is usually intended to be a tax on
consumption, hence the provision of a mechanism enabling producers to offset the tax they have paid on their inputs against that charged on their sales of goods and services. !nder VAT revenue is collected throughout the production process without distorting any production decisions.
WHY VAT IS PREFERRED OVER SALES TAX? $hile theoretically the amount of revenue collected through VAT is e%uivalent to sales tax collections at a similar rate, in practice VAT is likely to generate more revenue for government than sales tax since it is administered on various stages on the production & distribution chain. $ith sales tax, if final sales are not covered by the tax system e.g. due to difficulty of covering all the retailers, particular commodities may not yield any tax. 'owever, with VAT some revenue would have been collected through taxation of earlier transactions, even if final retailers evade the tax net.
There is also in-built pressure for compliance and auditing under VAT since it will be in the interest of all who pay taxes to ensure that their eligibility for tax credits can be demonstrated. VAT is also a fairer tax than sales tax as it minimi(es or eliminates the problem of tax cascading, which often occurs with sales tax. These are facilitated by the fact that VAT operates through a credit system so that tax is only applied on value added at each stage in the production & distribution chain. At each intermediate stage credit will be given for taxes paid on purchases to set against taxes due on sales. )nly at consumption stage where there are no further transactions will there be no tax credits. *ack of input credit facility in sales tax often results in tax on inputs becoming a 6 | Page
cost to businesses which are often passed on to consumers. +ales tax is often applied again to the sales tax element of the cost, thus there is a problem of tax on tax. This is not the case with VAT, which makes it a neutral tax as it provides the least disturbance to patterns of production and the generation and use of income.
#n addition, the audit trail that exists under the VAT system makes it a more effective tax in administration terms than sales tax as it helps with the verification of VAT amounts declared as due. This is made possible by the fact that one persons output is anothers input. As with sales tax imports are treated the same way as local goods while exports are (ero- rated to avoid anti-export bias.
otwithstanding the advantages mentioned above, it is worth noting that VAT is a considerably complex tax to administer compared with sales tax. #t may be difficult to apply to small companies due to difficulties of record keeping and its coverage in agriculture and the services sector may be limited. To cover the high administration costs, VAT rates of /-0/ per cent are generally recommended. The e%uity impact of the relatively high rates have been a cause for concern as it is possible that the poor spend relatively high proportions of their incomes on goods sub1ect to VAT. Thus the concept of (ero VAT rate on some items has been introduced.
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DIFFERENCE BETWEEN VAT AND CST
!nder the +T Act, the tax is collected at one stage of purchase or sale of goods. Therefore, the burden of the full tax bond is borne by only one dealer, either the first or the last dealer. 'owever, under the VAT system, the tax burden would be shared by all the dealers from first to last. Then, such tax would be passed upon the final consumers. !nder the +T Act, the tax is levied at a single point. !nder the VAT system, the retailers are not sub1ect to tax except for the retail tax.
!nder the +T Act, general and specific exemptions are granted on certain goods while VAT does not permit such exemptions. !nder the +T law, concessional rates are provided on certain taxes. The VAT regime will do away with such concessions as it would provide the full credit on the tax that has been paid earlier.
!nder VAT law, first, the dealer pays tax on the sale or purchase of goods. The subse%uent dealer pays tax on the portion of the value added upon such goods. Thus, the tax burden is shared e%ually by the last dealer. To illustrate the whole procedure of VAT, an example is as follows2
At the first point of sale, the value of goods is 3s.//. The tax on this is 0.45. Therefore, the net VAT would be 0.45. At the second change of sale, the sale value is 3s.0/ and the tax thereon is 45. The tax that is to be paid at every point is 45. The input tax is 45. The dealer will get a credit for first change in sale of 0.45-- i.e. 45 -0.45. Therefore, 0.45 will be the net rate. At the third change of sale, the sale value is 3s.4/ and the tax on this is 6.745. At the last stage, the tax paid is 6.745. The #nput Tax is 6.745. 8ealers get a credit for second change in sale9 i.e. 6.745 -45 : ;.745. Therefore, ;.745 would be the net VAT. This means that VAT is paid in the last point tax under the sale tax regime.
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WHO GAINS? +tate and entral governments gain in terms of revenue. VAT has in-built incentives for tax compliance < only by collecting taxes and remitting them to the government can a seller claim the offset that is due to him on his purchases. Everyone has an incentive to buy only from registered dealers < purchases from others will not provide the benefit of credit for the taxes paid at the time of purchase. This transparency and in-built incentive for compliance would increase revenues. #ndustry and trade gain from transparency and reduced need to interact with the tax personnel. =or those who have been complying with taxes, VAT would be a boon that reduces the cost of the product to the consumer and boosts competitiveness. VAT would be ma1or blow for tax evaders, both manufacturers who evade excise duty payments and traders who evade sales-tax.
WHAT’LL BE THE TAX BURDEN? The overall tax burden will be rationali(ed as itll be shared by all dealers, and prices, in general, will fall. >oreover, VAT will replace the existing system of inspection by a system of built-in self-assessment by traders and manufacturers. The tax structure will become simple and more transparent and tax compliance will improve significantly. #t will also be simpler and offer easy computation and easy compliance. VAT will prevent cascading effect through input rebate and help avoid distortions in trade and economy by ensuring uniform tax rates.
WHO PAYS? All dealers registered under VAT and all dealers with an annual turnover of more than 3s 4 lakh will have to register. 8ealers with turnovers less than 3s 4 lakh may register voluntarily.
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HOW TO PAY? VAT will be paid along with monthly returns. redit will be given within the same month for entire VAT paid within the state on purchase of inputs and goods. redit thus accumulated over any month will be utili(ed to deduct from the tax collected by the dealer during that month. #f the tax credit exceeds the tax collected during a month on sale within the state, the excess credit will be carried forward to the next month.
WHICH GOODS WILL BE TAXABLE UNDER VAT? All goods except those specifically exempt. #n fact, over 44/ items will be covered under the new tax regime, of which ?@ natural and unprocessed local products would be exempt from VAT. About 07/ items, including drugs and medicines, all agricultural and industrial inputs, capital goods and declared goods would attract ?5 VAT. ut, following opposition from some states, it was decided that states would have option to either levy ?5 or totally exempt food grains from VAT but it would be reviewed after one year. Three items < sugar, textile, tobacco < under additional excise duties will not be under VAT regime for one year but existing arrangement would continue.
OTHER CONSIDERATIONS #t is imperative that policy makers in considering adoption of VAT should be interested in the economy wide impact of this tax. +pecial emphasis is often placed on its effect on e%uity, prices and economic growth.
This is particularly important because of the
potential effects on consumption of certain commodities that have a direct or indirect effect on labour productivity.
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VAT EFFECT ON INFLATION #n considering the introduction of VAT, countries are often concerned that it would cause an inflationary spiral. 'owever there is no evidence to suggest that this is true. A survey of )E8 countries that introduced VAT indicated that VAT had little or no effect on prices. #n cases where there was an effect it was a one time effect that simply shifted the trend line of the consumer price index B"#C. To guard against any unforeseen price effects the authorities may consider a tighter monetary policy stance at the introduction of VAT.
DISTRIBUTION EFFECTS OF VAT Value added tax is widely critici(ed as being regressive with respect to income that is its burden falls heavily on the poor than on the rich. This emanates from the fact that consumption as a share of income falls as income rises. 'ence a uniform VAT rate falls heavily on the poor than the rich.
This criticism is valid when VAT payments are
expressed as a proportion of current income. 'owever if, following the premise that welfare is demonstrated by the level of consumption rather than income, consumption is used as the denominator the impact of VAT would be proportional.
A proportional
burden would also be demonstrated if lifetime income rather than current income is used. A lifetime income concept considers the fact that many income recipients are only temporarily at lower income brackets as their earnings increase. #n order to address the regressivity of VAT the following measures can be taken2
D
The VAT itself can be used to differentiate taxation of consumer items that are
consumed primarily by the poor such that they pay less or at (ero rate or to tax luxury goods at a higher than standard rate.
D
VAT exemptions may also be granted on goods and services that are consumed
mostly by the poor.
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D
E%uity concerns may also be addressed through other ways, outside the VAT
system, such as other tax and spending instruments of government. This could be in the form of lower basic income tax rates on the poor or some pro-poor expenditures of government. The use of multiple rates of VAT has however been widely discouraged for various reasons. These include2
D
The fact that sometimes it is almost impossible to differentiate between
higher %uality expensive products & e.g. food, consumed by the rich and ordinary products consumed by the poor. Thus any concessions extended may tend to benefit the rich much more than the poor.
D
#ncreased costs of VAT administration as a differentiated rate structure
brings with it problems of delineating products and interpreting the rules on which rate to use.
D
significantly increased costs of tax compliance for small firms, which are usually
unable to keep separate recordsaccounts for sales of differently taxed items.
This
results in the use of presumptive methods of determining the tax liability, which leads to more difficulties in monitoring the compliance. The higher compliance cost resultant from differentiation of VAT rates may also be regressive with respect to income since smaller firms with lower income tend to bear proportionately more of the burden than do larger firms.
Exemptions refer to situations where output is not taxed but taxes paid on inputs are not recoverable.
The rationale behind exemptions is to reduce negative distributional
effects of tax through the effect on incomes. The effects of exemption may be as follows2
D
falling of revenues & exemptions break the VAT chain. #f exemptions are granted
at prior to the final sale, it results in a loss of revenue since value added at the final stage escapes tax. 12 | P a g e
D
!n-recovered taxation of some intermediate goods may lead to producers
substituting away from such inputs thus distorting the input choices of the said producers.
D
Exemptions may create incentives to Fself supplyG i.e. tax avoidance by vertical
integration.
D
Exemptions tend to feed on each other giving rise to a phenomenon called
Fexemption creepG.
This arises from the fact that each exemption gives rise to
pressures on further exemption. =or example creating an exemption to reduce the tax burden on a particular commodity or goods may lead to increased pressure for exemption or (ero rating of inputs used for the production of such a commodity.
ased on the above, it is important that care is taken when introducing exemptions in order to avoid distortions in the production process as well as to minimi(e revenue loss resulting from such distortions.
Hiven the fact that the primary purpose of VAT is to raise government revenue in an efficient manner and with as little distortions of economic activity as possible, distribution effects are perhaps better addressed by other forms of tax and government expenditure policies which can often be better targeted at these aims.
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VAT EFFECT ON ECONOMIC GROWTH Economic growth can be facilitated through investment by both government and the private sector. +avings by both parties are re%uired in order to finance investment in a non-inflationary manner. ompared to other broadly based taxes such as income tax VAT is neutral with respect to choices on whether to consume now or save for future consumption. Although VAT reduces the absolute return on saving it does not reduce the net rate of return on saving. #ncome tax reduces the net rate of return as both the amount saved as well as the return on that saving are sub1ect to tax. #n this regard VAT may be said to be a superior tax in promoting economic growth than income tax. +ince VAT does not influence investment decisions on firms, by increasing their costs, its effects on investment can be said to be neutral.
FEATURES OF VAT . 3ate of Tax VAT proposes to impose two types of rate of tax mainly2 a. ?5 on declared goods or the goods commonly used. b. /-05 on goods called 3evenue eutral 3ates B33C. There would be no fall in such remaining goods. c. Two special rates will be imposed-- 5 on silver or gold and 0/5 on li%uor. Tax on petrol, diesel or aviation turbine fuel are proposed to be kept out from the VAT system as they would be continued to be taxed, as presently applicable by the +T Act. 0. !niform 3ates in the VAT system, certain commodities are exempted from tax. The taxable commodities are listed in the respective schedule with the rates. VAT proposes to keep these rates uniform in all the states so the goods sold or purchased across the country would suffer the same tax rate. 8iscretion has been given to the states when it comes to finali(ing the 33 along with the restrictions. This rate must not be less than /5. This will ensure y doing this that there will be level playing fields to avoid the trade diversion in connection with the different states, particularly in neighboring states 14 | P a g e
;. o concession to new industries Tax oncessions to new industries is done away with in the new VAT system. This was done as it creates discrepancy in investment decision. !nder the new VAT system, the tax would be fair and e%uitable to all. ?. Ad1ustment of the tax paid on the goods purchased from the tax payable on the goods of sale All the tax, paid on the goods purchased within the state, would be ad1usted against the tax, payable on the sale, whether within the state or in the course of interstate. #n case of export, the tax, paid on purchase outside #ndia, would be refunded. #n case of the branch transfer or consignment of sale outside the state, no refund would be provided. 4. ollection of tax by sellerdealer at each stage. The sellerdealer would collect the tax on the full price of the goods sold and shows separately in the sell invoice issued by him @. VAT is not cascading or additive though the tax on the goods sold is collected at each stage, it is not cascading or additive because the net effect would be as follows2 - the tax, previously paid on the sale of goods, would be fully ad1usted. #t will be like levying tax on goods, sold in the last state or at retail stage.
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WHAT’S THE BIGGEST ADVANTAGE? The biggest benefit of VAT is that it could unite #ndia into a large common market. This will translate to better business policy. ompanies can start optimi(ing purely on logistics of their operations, and not on based on tax-minimi(ation. *orries need not wait at check-points for daysI they can (oom down the highways to their destinations. 3educed transit times and lower inventory levels will boost corporate earnings. =ollowing are the some more advantage of VAT2 . Simplific!i"# !nder the +T Act, there are 6 types of tax rates- 5, 05, ?5, 65, /5, 05, 0/5 and 045. 'owever, under the present VAT system, there would only be 0 types of taxes ?5 on declared goods and /-05 on 33. This will eliminate any disputes that relate to rates of tax and classification of goods as this is the most usual cause of litigation. #t also helps to determine the relevant stage of the tax. This is necessary as the +T Act stipulates that the tax levies at the first stage or the last stage differ. onse%uently, the %uestion of which stage of tax it falls under becomes another reason for litigation. !nder the VAT system, tax would be levied at each stage of the goods of sale or purchase. 0. A$%&'!m(#! "f !) pi$ "# p&*c+'($ ,""$' !nder the present system, the tax paid on the manufactured goods would be ad1usted against the tax payable on the manufactured goods. +uch ad1ustment is conditional as such goods must either be manufactured or sold. VAT is free from such conditions. ;. F&*!+(* '&c+ $%&'!m(#! of the purchased goods would depend on the amount of tax that is payable. VAT would not have such restrictions. +T would not have the provisions on refund or carry over upon such goods except in case of export goods or goods, manufactured out of the country or sale to registered dealer. +imilarly, on interstate sale on tax-paid goods, no refund would be admissible.
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?. T*#'p*(#c- The T*#'p*(#c- The tax that is levied at the first stage on the goods or sale or purchase purchase is not transparent. transparent. This is because the amount of tax, which the goods have suffered, is not known at the subse%uent stage. #n the VAT system, the amount of tax would be known at each and every stage of goods of sale or purchase. 4. Fi* #$ E.&i!/l( VAT E.&i!/l( VAT introduces the uniform tax rates across the state so that unfair advantages cannot be taken while levying the tax. @. P*"c($&*( "f 'implific!i"# "rocedures, relating to filing of returns, payment of tax, furnishing declaration and assessment are simplified under the VAT system so as to minimi(e any interface between the tax payer and the tax collector. 7. Mi#imi0( !+( Di'c*(!i"# the Di'c*(!i"# the VAT system proposes to minimi(e the discretion with the assessing officer so that every person is treated alike. =or example, there would be no discretion involved in the imposition of penalty, late filing of returns, non-filing of returns, late payment of tax or non payment of tax or in case of tax evasion. +uch system would be free from all these harassment 6. C"mp&!(*i0!i"# the C"mp&!(*i0!i"# the VAT proposes computeri(ation which would focus on the tax evaders by generating Exception 3eport. #n a large number of cases, no processing or scrutiny of returns would be re%uired as it would free the tax comp compli lian antt deale ealers rs from from all all the the hara harass ssme ment nt which hich is so much much a part art of assessment. The management information system, which would form a part of integra integrall computer computeri(at i(ation, ion, would would make make the tax departm department ent more more efficie efficient nt and responsive.
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VALUE ADDED TAX IN MAHARASHTRA 1&ic2 Fl'+ Bc2 +ales tax was first introduced in #ndia in the then ombay "rovince as early as >arch J;6 where a tax was imposed on sale of tobacco within certain urban and suburban areas. #n the year J?@, a general sales tax was introduced introduced levying sales tax at the last stage of sale of goods. The The omba ombay y +ales +ales Tax Act, J4J J4J intro introduc duced ed in J4J J4J under underwe went nt many many chang changes es thereafter and in Kuly J6, first point tax was introduced wherein goods were classified into three main schedules, broadly covering tax free goods, intermediate products and finished goods. The +T Act was repealed and >aharashtra Value Added Tax Act, 0//0 came into force w.e.f. st April, 0//4 to usher in the progressive value added tax system in place of the old sales tax system. VAT is a progressive and transparent system of taxation which eliminates the cascading impact of multiple taxation through a multipoint taxation and set-off principle. #t promotes trans transpar paren ency cy,, compl complian iance ce and e%uity e%uity and ther therefo efore, re, is both both deale dealerr frien friendly dly and and consumer friendly. VAT being a multi point tax, envisages an increase in the number of dealers and is based on the concept of self-assessment self-assessment and self-compliance. self-compliance. #t is therefore, therefore, inevitable that the +ales Tax 8epartment transforms itself into a dealer friendly, focused and dyna dynami mic c depa depart rtme ment nt to cate caterr to the the ever ever incr increa easi sing ng expe expect ctat atio ions ns of both both the the Hovernment and the Trade L #ndustry. +ales Tax 8epartment has taken up the challenge to transform their selves and be available for assisting the dealers in complying with the provisions of the law. They are in the process of installing a state-wide networked #T system to computerise entire tax administration and hope to provide online service to the dealers in due course. They are also realigning their organisational structure to meet the challenges of the new system and stakeholdersM expectations.
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P*!3 4 I#!*"$&c!i"# Bc2,*"&#$
>aharashtra is one of the 0 +tates which have introduced the Value Added Tax BVATC system of taxation from st April 0//4. $ith the introduction of VAT, the +ales Tax 8epartment has moved to a globally recogni(ed sales taxation system that has been adopted by more than ;/ countries.
The design of >aharashtra +tate VAT is generally guided by the best international practices with regard to legal framework, as well as operating procedures. Another key factor in preparation of the design of +tate level VAT is the national consensus on certain issues. The consensus has been arrived at through the discussions in the Empowered ommittee of +tate =inance >inisters on implementation of +tate level VAT.
)n st April 0//4, VAT replaced the single point sales tax. +ingle point sales tax had a number number of disadva disadvanta ntages, ges, primarily primarily that of double double taxatio taxation. n. VAT is a modern modern and progres progressive sive taxation taxation system system that that avoids avoids double double taxatio taxation. n. #n additio addition n to offerin offering g the possibility of a set-off of tax paid on purchases, VAT has other advantages for both business and government.
•
#t elimin eliminate ates s casca cascadin ding g impact impact of doub double le taxati taxation on and and promot promotes es econ economi omic c efficiency.
•
#t is primarily a self-policing, self-assessment system with more trust put on dealers.
•
#t provides the potential for a stronger stronger manufacturing base and more competitive export pricing.
•
#t is invoic invoice e based, based, and and as as a resu result lt it offe offers rs a bett better er finan financi cial al syste system m scope for error.
•
#t has an improved control, mechanism resulting in better compliance.
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with with
less less
•
#t widens the, tax base and promotes e%uity.
VAT in >aharashtra is levied under a legislation known as the >aharashtra Value Added Tax Act B>VAT ActC, supported by >aharashtra Value Added Tax 3ules B>VAT 3ulesC. VAT is levied on sale of goods including intangible goods.
T+( m(#i#, "f 5,""$'6 f"* VAT p&*p"'('
FHoodsG means every kind of moveable property including goods of incorporeal and intangible nature but there are some exclusion, such as newspapers, actionable claims, money, shares and securities and lottery tickets.
usinesses engaged in. the buying and selling of goods within the scope of the VAT law are referred to as dealers.
T+( m(#i#, "f 7'l(7 f"* VAT p&*p"'('
A transaction of sale can be a2 •
normal sale of goodsI
•
sale of goods under hire-purchase systemI
•
deemed sale of goods used # supplied in the course of execution of works contractI
•
deemed sale of goods given on lease.
The rate of tax applicable to the goods sold under various classes of sales is uniform. 'owever, in respect of normal sales of goods and deemed sales of goods under works contract and specified deemed sale of goods given on lease, the Act provides for an optional method for discharging tax liability by way of composition. eing so, the tax liability has to be determined with reference to the option exercised by the dealer for discharging tax liability.
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B&'i#(''(' c"8(*($ /- VAT
The VAT system embraces all businesses in the production and supply chain, from manufacture through to retail. VAT is collected at each stage in the chain when value is added to goods. t applies to al businesses, including importers, exporters, manufacturers, distributors, wholesalers, retailers, works contractors and lessors.
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P*! 9 4 R(,i'!*!i"# &#$(* VAT R&l(' f"* *(,i'!*!i"#
#f a dealers annual turnover exceeds the below mentioned threshold, then it must register with the local office of the +ales Tax 8epartment. All =igures in 3s. ategory
#mporter )thers
Annual Turnover of
Turnover of sales or
=ees payable on
+ales
purchase of taxable
registration
,//,/// 4,//,///
goods not less than /,/// /,///
// //
#f the dealers turnover is less than the above threshold, then they are not liable to collect and pay VAT. 'owever, if a dealer wishes to avail the benefits of being a registered dealer, then they may apply for voluntary registration by paying a fee of 3s.4,/// -.
B(#(fi!' "f /(i#, *(,i'!(*($ $(l(*
As a registered dealer, they are entitled to2 •
collect VAT on the salesI
•
claim set-off of tax Binput tax creditC paid on purchasesI
•
#ssue tax invoices and, be competitive.
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Eff(c!i8( $!( "f *(,i'!*!i"#
The effective date of registration, that is, the date front which a dealer may charge VAT on salesI will depend on the date they first become liable to pay VAT. This date will be determined as follows2 : N(; /&'i#(''('< #f a dealer is not registered because their annual turnover is less than the thresholdI their liability to account for VAT starts from the date they cross the threshold. /: E)i'!i#, /&'i#(''('< #f a dealer took over an existing business that is registered for VAT, then they will be liable to pay tax on sales from the date they took over the business. c: V"l&#!*- *(,i'!*!i"#< #f a dealer is registered on a voluntary basis, then he will be liable to account for VAT from the date shown on the certificate of registration. $: L!( *(,i'!*!i"#< #f a dealers turnover has exceeded the appropriate threshold but they have applied late for registration, then he can charge VAT on his sales only after they are registered, i.e., from the date shown on the certificate of registration.
=urther, having crossed the threshold, it is an offence to be engaged in business as a dealer without a certificate of registration
C(*!ific!( "f *(,i'!*!i"#
A dealer should prominently display the certificate and hologram, or a copy of the certificate and hologram, at each place where they carry can on their business.
#f a dealer has more than one place of business, then +ales Tax )ffice will provide them, upon their re%uest, one copy of the certificate of registration and hologram for each additional place of business.
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#f a dealer loses his her certificate of registration or hologram, or it is accidentally destroyed or defaced, then they may obtain a duplicate copy of the certificate of hologram from their sales tax office.
The certificate of registration and hologram is personal to the dealer to whom it is issued and is non-transferable.
C+#,(' !" /&'i#('' ci*c&m'!#c('
#f, following dealer register, there are any amendments to the details they can be reported while applying for registration, it must done within @/ days of the change, inform us in writing. •
$here the amendment involves a2
•
change in the name of the businessI
•
change in the constitution of the business without dissolution of the firmI
•
change in the trustees of a TrustI
•
change in the guardianship of a wardI
•
change in the Narta of a 'indu !ndivided =amilyI
•
conversion of "rivate limited ompany to a "ublic limited ompanyI
•
change in the place of businessI
•
addition of new place of businessI
•
formation of a partnership with regard to the business,
•
an application made by a dealer for insolvency or li%uidation of their businessI
•
an application made against dealers business for insolvency or li%uidationI
•
opening or closing of a bank accountI
24 | P a g e
A dealer will not need to make a fresh application for registration. 'owever, the communication to the 3egistering Authority concerned should be made within sixty days of the change or occurrence of the event.
C#c(ll!i"# "f *(,i'!*!i"#
A dealer will be liable to pay VAT while their registration is effective. #f however, their turnover falls below the threshold, he may choose to apply for cancellation of his registration. 'owever, he should continue to collect and pay VAT in the normal way until his registration is formally cancelled. Alternatively, they may be allowed the registration to continue.
#f a dealer2 •
discontinue the businessI
•
dispose of or sell or transfer the businessI
A dealer must inform the +ales Tax 8epartment within ;/ days of the event. #n case of disposal or sale of business, their successor will need to apply for a fresh registration certificate.
=or cancellation of registration a dealer should submit form /; which is available with the
local
sales
tax
office.
#t
can
also
be
downloaded
from
the
website
;;;=8!=m+*'+!*=,"8=i#
#f the +ales Tax 8epartment cancels the dealers registration, they must return the ertificate of 3egistration
The cancellation of their certificate does not affect their liability to pay any tax, interest or penalties in respect of any period prior to the date of cancellation of their registration.
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T+( "/li,!i"#' "f *(,i'!(*($ $(l(*
=ollowing are the registration, which dealers are obliged to2 •
display prominently their certificate of registration and hologram in their place of business, and a copy of the certificate and hologram in each of the other places where they carry on their businessI
•
inform their sales tax office of any changes in the details previously reported to the sales tax officeI
•
collect VAT on all sales at appropriate ratesI
•
calculate the tax due and submit correct, complete and self consistent returns and pay the amount of tax due on or before the due datesI
•
issue tax invoice bill or cash memorandum to all customersI
•
maintain ade%uate records and retain them for a period of five years from the end of the tax year to which they relateI
•
extend co-operation to the officers of the +ales Tax 8epartment at dealers business premises and provide all assistance to them to discharge their duties.
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P*! > 4 E)pli#i#, VAT H"; VAT ;"*2'
$hen a dealer sell goods, the sale price is made up of two elementsI the selling price of the goods and the tax on the sale. The tax is payable to the +tate Hovernment.
The tax payable on sales is to be calculated on the selling price. The tax paid on purchases supported by a, valid tax invoice is generally available as set-off Binput, tax creditC while discharging the tax liability on sales.
E)mpl(
The following example shows how the VAT works through the chain from manufacturer to retailer.
C"mp#- A buys iron ore and other consumables and manufactures stainless steel utensilsI P*!#(*'+ip fi*m B buys the utensils in bulk from C"mp#- A and polishes themI '+"p2((p(* C buys some of the utensils and purchases packing, material from 8(#$"* D, packages them and sells the packed utensils for the public.
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BThe sale and purchase figures shown in the example are excluding taxC P*!ic&l*'
Am"&#!
VAT @
R'=:
R'=:
C"mp#- A ost of iron are and consumables +ales of unpolished stainless steel utensils
4/,/// ,4/,//
Vl&( $$($
/ 3
9
ompany A is liable to pay VAT on 3s.,4/,///- O ?5 *ess +et )ff N(! VAT m"&#! !" p- ;i!+ !+( R(!&*# Bote2 Tax
@/// B0///C
invoice issued by ompany A will show sale price as 3s.,4/,///- tax as 3s.@,///-. Therefore, the total invoice value will be 3s.,4@,///-C P*!#(*'+ip B "urchases unpolished stainless steel utensils.
,4/,//
+ales polished stainless steel utensils
/ ,6/,//
Vl&( $$($ "artnership is liable to pay V AT on 3s.,6/,/// at ?5 ut can claim set off of tax paid on purchases N(! VAT m"&#! !" p- ;i!+ !+( R(!&*#
/ > 7,0// B@,///C 39
S+"p2((p(* C "urchases polished stainless steel utensils
,6/,//
"acking material Total "urchases
/ 4,/// ,64,//
+ales
/ 0,04,//
Vl&( $$($ +hopkeeper is liable to pay V AT on 3s.0,04,/// O ?5 +et off of tax paid on purchases B R'=9 R'=9 of
/ J,/// 7,?//
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packing materialC N(! VAT m"&#! !" p- ;i!+ !+( R(!&*#
3
V(#$"* D Tax paid costs +ales Vl&( A$$($
il 4,///
V(#$"* D i' li/l( !" p- VAT "# R'= @ The VAT due on the value added through the chain, i.e.,
9
?5 on 3s.0,04,/// is 2 The +tate Hovernment received the tax in stages. The payments of tax were as follows2 P*!ic&l*' +uppliers of ompany A ompany A "artnership +hopkeeper Vendor 8 T"!l
Am"&#! R'=: 0,/// ?,/// ,0// ,@// 0//
Thus, through a chain of tax on sale price and set off on purchase price, the cascading impact of tax is totally eliminated.
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+ince set-off of tax on purchases is given only on purchases from registered dealers where tax is collected separately, dealers purchases from unregistered dealers, imports, inter-state purchases and purchases from registered dealers without separate tax collection are not entitled to set-off.
#n practice, the tax is finally borne by the ultimate consumer, who is not a registered dealer, in this case, people who buy utensils from the shopkeeper .
R!(' "f 8l&( $$($ !)
There are two main rates of VAT ?5 and 0.45. The goods are grouped into five schedules as under2
Sc+($&l( A
R!( "f !) /5 5 ?5
8
0/5 and
E
above 0.45
Ill&'!*!i8( I!(m' Vegetables, milk, eggs, bread "recious metals and precious stones and their 1ewellery 3aw materials, notified industrial inputs, notified information technology products and a few essential items *i%uor, petrol, diesel etc )ther than items specified in schedules A, , L 8.
BThe list is illustrative and not exhaustive. "lease refer to the schedules for detailsC
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Diff(*(#c( /(!;((# !) f*(( ,""$' #$ ()(mp! 'l('
#t is sometimes confusing to have goods that are tax free and sales that are exempt. oth result in no VAT being charged, so what is the difference9
Tax free goods do not attract tax at any stage of sale or in any type of transaction, whereas, exempted sales are certain types of transactions, vi(., export sales which are exempt from tax.
C"mp"'i!i"# 'c+(m('
ertain dealers may find it difficult to keep detailed records for claiming set-off. =or such dealers, a simpler and optional method of accounting for VAT has been introduced. This method is the composition scheme. #t may be noted that composition scheme is not meant to be a tax concession scheme but only a simplification of tax calculation and payment system.
T) p-/l( /- $(l(*' "p!i#, f"* c"mp"'i!i"# i# li(& "f VAT
The following classes of dealers are eligible for option to pay tax under composition2 •
3esellers selling at retail, i.e., to consumers,
•
3estaurants, eating houses, hotel Bexcluding hotels having gradation of M=our +tar and aboveC, refreshment rooms, boarding establishments, clubs and caterers,
•
akers,
•
8ealers in second-hand passenger motor vehicles and
•
$orks contractors
•
8ealers engaged in the business of providing mandap, pandal, shamiana.
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Accordingly, if the dealer has opted for payment of tax liability under composition, the tax liability has to be determined in terms of the guidelines given in the relevant otification in this regard. Apart from the terms and conditions governing each of the composition schemes, the otification explains the methodology for computation of turnover liable to tax and the rate of composition payable.
A dealer can opt for the composition option at the beginning of the financial year and has to continue to be a composition dealer at least till the end of that financial year. #f dealer wishes to switch, over to normal VAT, he can do so only at the beginning of the next financial year. 'owever, a new dealer can opt for composition at the time of registration.
#n respect of works contract, the contractor can choose to discharge tax liability under composition option. >oreover, such an option can be exercised by the contractor on contract to contract basis.
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P*! 4 Clc&l!i#, !) li/ili!-
#n, order to calculate how much tax a dealer has to pay, he must, first determine his turnover of sales and turnover of purchases. The second stage is to ascertain the amount of tax due for payment.
Clc&l!i#, !&*#"8(* "f 'l(' #$ p&*c+'('
The turnover of sales is the total of the amounts received or receivable Bexcluding VAT charged separatelyC in respect, of the sale of goods, less the amount refunded to a purchaser in respect of goods returned, within six months of the date of the sale.
+imilarly, the turnover of purchases is the total of the amounts paid or payable Bexcluding VAT charged separatelyC in respect of the purchase of goods less Bthe amounts repaid to dealer in respect of goods they return, within six months of the date of purchase.
C*($i! #"!(' #$ $(/i! #"!('=
#f the sale price, or the purchase price, of any goods is varied and either a credit note or a debit note is issued, then the credit note or the debit note, as the case may be, should •
show separately, the tax and the price.
•
be accounted for in the period in which the appropriate entries are made in their books of accounts.
33 | P a g e
Sp(cil c'('
A&c!i"#((*' #f dealer is an auctioneer, then they must include in their turnover, the price of the goods they auction for their principal H"!(l' There are special rules for hotels and other establishments that provide boarding and lodging for an inclusive amount. The rules provide a formula to enable them to calculate their turnover of sales for meals Bfood and beveragesC which they provide. The supply of food in a restaurant also includes an element of service. ut the full amount charged is the sale price for the purposes of calculating turnover and tax. W"*2' c"#!*c!' VAT applies only to the sale of goods. +upply of services is not liable to VAT. $orks contracts are deemed sales where both, goods and services are provided in a transaction and cannot be separated. A works contract may involve the creation of immoveable property, e.g. a house, a factory or a bridge. +ome other examples of works contracts are photography, repairs L maintenance etc. To calculate the amount a dealer should include it in their turnover of sales, so that they may deduct it from the total contract price, the •
costs of labour and service charges.
•
amount paid to sub-contractors.
•
charges for planning and designing, and any architectMs fees.
•
hiring charges for machinery and tools.
•
cost of consumables, such as, water, gas and electricity.
•
8ealers administrative costs relating to labour and services and any other similar expenses.
•
any profit element that relates to the supply of labour and services.
34 | P a g e
Alternatively, in lieu of the deductions as above, a dealer may choose to discharge the liability arising on works contracts by referring to the table prescribed in the rules. #f the dealer finds that it is too complicated to calculate the deductions, then they may opt for a composition scheme for any works contract.
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S*+,o.-2
E/*+,* S345
Chana/ya’s econo(ic ?isdo( o' 4antin4 states the i4ht to taA its 0eo0+e 1ust as a she0hed sheas his '+oc/ o as a ;ee 4ets necta 'o( the '+o?e ?e haBe died ?ith hi(. The (oden $ndian state taAes its 0eo0+e 1ust +i/e the Fench use the '+o?e 'o eAtactin4 0e'u(e in such a ?ay that ;y the ti(e they ae thou4h, nothin4 (uch o' the '+o?e e(ains. OBe the yeas, this su''ocatin4 syste( o' taAation has s0a?ned a ;+ac/ econo(y that is ;y (any esti(ates ha+' as ;i4 as the ?hite counte0at. MoeoBe the eBenue co++ection syste( o' the states ?as a tota++y cou0t one and (any e''ots since the econo(y actua++y +i;ea+iDed itse+' haBe ;ou4ht on+y +i(ited esu+ts ?ith +ot (oe e(ainin4 to ;e done. ne? syste( o' taAation ;ase on the 0inci0+es o' Ba+ue addition too/ e''ect 'o( 0i+ 566. The ;asic o;1ectiBe o' this 0o1ect is to 4ain /no?+ed4e o' the cuent indiect taA e4i(e i.e. *a+ue dded TaA, this e0ot ?i++ he+0 one to /no? ?hat ae the 0eeuisites 'o e4istein4 unde the *at e4i(e & ?hat ae the ;ene'its o' *T oBe the 0eBious Sa+es TaA e4i(e. "hen ?e ta+/ a;out conte(0oay a;out *T i((ediate+y Goods & SeBices TaA e4i(e co(es to the 0ictue ?hich is no? schedu+ed to ;e i(0+e(ented in 5677. This ?as the othe o;1ectiBe, to undestand the conce0t o' GST.
36 | P a g e
R ** o %,*43,4* D389:,3 A! 200; 1, This "hite %a0e on State)+eBe+ *a+ue dded TaA !*T# is 0esented in
thee 0ats. 7# The 1usti'ication o' *T and its ;ac/4ound $n %at 5, the (ain desi4n o' *T, as eBo+Bed on the ;asis o' a consensus a(on4 the States thou4h e0eated discussions in the E(0o?eed Co((ittee, has ;een e+a;oated. "hi+e doin4 so, it ?as eco4niDed that this *T ?as a State su;1ect and thee'oe the States had 'eedo( 'o a00o0iate Baiations consistent ?ith the ;asic desi4n as a4eed u0on at the E(0o?eed Co((ittee. Fina++y, in %at -, .?hat ?as the ste0s ta/en ;y the Baious states.
R3o $ 200< 2 This 0a0e atte(0ts to identi'y so(e o' the 0otentia+ contous o' the taA. One o'
the /ey issues that need to ;e eso+Bed is the teat(ent o' inte)state tansactions in 4oods and seBices. The e+ated issue concens taAation o' seBices ?hich s0an (oe than one taA 1uisdiction. $ntenationa+ eA0eience 0oints to?ads se+')assess(ent in the case o' e4isteed taA0ayes and taAation in the 1uisdiction o' the su00+ie in othe cases, ?ith so(e eBenue shain4 a(on4 the (e(;e states. So(e o' the detai+s need to ;e ?o/ed out ;e'oe the taA on seBices can ;e i(0+e(ented at the state +eBe+. second concen e+ates to the need to inte4ate taA ad(inistation at the t?o +eBe+s in ode to (aAi(iDe on the e''iciency o' ad(inistation.
1 Dasgupta, A., 2005,”A White Paper On tate!"e#e$ %a$ue A&&e& Ta'”, 2 (a), *, 200+, ”))&s an& er#i-es Ta' )r In&ia”, Nati)na$ Institute ) Pu/$iFinan-e an& P)$i- Ne De$hi, http33.nipp.)rg.in 3- | P a g e
D T TI#200= The SuBey esu+ts de(onstate an a+(ost unani(ous consensus that GST ?i++ ;e
;ene'icia+ to the $ndian econo(y. >ut the suita;i+ity o' :ua+ GST ?hich see(s to ;e the on+y 0actica+ a+tenatiBe in the shot)te( is not 'aBoed ;y a (a1oity o' the es0ondents. $n addition, the 0ossi;i+ity that a 'e? states (ay not 1oin the GST ;and?a4on 0esents as aea o' concen. The es0ondents ?ee diBided oBe eAtension o' GST to 0oducts o' cons0icuous consu(0tion ?hich attact hi4h taA ate o the (anne o' aBai+a;i+ity o' taA cedit on ca0ita+ 4oods. The (ost si4ni'icant 0oint to note out o' the SuBey, not entie+y uneA0ected, is the Bie? that the a00o0iate date 'o GST intoduction is 0i+ 5677. $t is a+so inteestin4 to note that Easie co(0+iance, e''icient ad(inistation and inceased taA co++ection ae an/ed in that ode as citica+ success 'actos. C+ea+y thee is a (essa4e to the GoBen(ent ?hee the i(0+e(entation e''ots shou+d ;e ai(ed at. The esu+ts o' the SuBey eBea+ the eA0ectations, a00ehensions and concens o' the tade & industy and 0oBide an insi4ht to the 0o+icy(a/es to addess the sa(e 'o a success'u+ i(0+e(entation o' the GST.
4DTTI,200, 6The re (ST S/r+e9: De$)itte T)u-he T)h7atsu In&ia Pri#ate "i7ite&, htt0<
Need, Sco0e & O ;1ectiBe o' Study Need
$n the cuent scenaio ?hen ou econo(y is to i(0+e(ent its ne? indiect taA e4i(e Goods & SeBices TaA ?hich is eAtension to *T (ode+. The study ai(s to co(0ae the *T ?ith sa+es taA e4i(e & then to haBe insi4ht a;out e4istein4 unde *T. Scope
The sco0e o' study coBes *T the cuent e4i(e & the ne? GST e4i(e.
Objective •
To 9ndestand the conce0t o' *T
•
To Co(0ae *T ?ith Sa+es taA e4i(e
•
To /no? ho? to e4iste unde *T
•
To %ocedue 'o :ec+aation & %ay(ent o' *T
•
To /no? $(0act o' *T on Econo(y & $n'+ation
•
To /no? 'eatues o' Goods & SeBices T@
3 | P a g e
*a+ue dded TaA History4
Mauice Lau, Joint :iecto o' the Fench TaA uthoity, ?as 'ist to intoduce *T on 0i+ 76, 7I, a+thou4h Ge(an industia+ist :. "i+he+( Bon Sie(ens 0o0osed the conce0t in 7I7. $nitia++y diected at +a4e ;usinesses, it ?as eAtended oBe ti(e to inc+ude a++ ;usiness sectos. $n Fance, it is the (ost i(0otant souce o' state 'inance, accountin4 'o 5 o' state eBenues.
VAT in India
Fina++y a'te 7 yeas Bat ?as i(0+e(ented. Let us haBe a 4+ance on the histoy o' Bat u0 ti++ 0i+ 566 and easons ?hy it cou+d not ;e i(0+e(ented ;e'oe. Econo(ic e'o(s ?ee on a 0ioity ;y the 4oBen(ent since 7II7. >ut it is to ;e noted that, *T ?as intoduced in $ndia in the yea 7I8, in es0ect o' Centa+ EAcise. Ho?eBe, it ?as esticted on+y u0 to the EAcise :uties, and ?as /no?n as ModBat !(odi'ied Ba+ue added taA#. The coBea4e o' ModBat 4adua++y inceased and coBeed Baious othe cha0tes. The i(0otance & need o' *T in the sa+es taA stuctue o' $ndia ?as eco4niDed ;y the taAation authoities. >ut the eason ?hy the 0o0osa+ o' *T too/ a +on4 ti(e is ;ecause *T in its si(0+est 'o( cannot ;e ado0ted in $ndia ?hee thee ae Baious authoities ?ho can +eBy the taAes !e.4. State< Centa+< Munici0a+ity# Thee ae Baious easons ?hy the i(0+e(entation can ta/e ti(e. $t is the 0o+icies, the 'a(e?o/, the co((odities, the taAation ate, chan4in4 'o( a (u+ti0+e 0oint taA to a sin4+e 0oint taA, etc and a++ such detai+s had to ;e ?o/ed u0on. MoeoBe, in the then eAistin4 sa+es taA e4i(e, it is the states that co++ect the taAes, that too at di''eent ates.
8 ; 9"es re-ettes :s-a$es9 ;in ren-h<. Le budget et les comptes de l’État . =inister ) the E-)n)7, In&ustr an& E7p$)7ent ;Fran-e< . 24 Fe/ruar 200. http33.per)r7an-e!pu/$i>ue.g)u#.r3$e!/u&get!et!$es!-)7ptes!&e! $etat3appr))n&ir3$es!re-ettes3$es!re-ettes!:s-a$es.ht7$. 9$a T%A repr?sente 140,2 7i$$iar&s &@eur)s, s)it 52,0 &es re-ettes :s-a$es nettes &e
[email protected] A--esse& r)7 http33en.iipe&ia.)rg3ii3%AT-iten)te!0 40 | P a g e
What is Value Added Tax (VAT! "
*T is a si(0+e tans0aent taA co++ected on sa+es o' 4oods. The states and union teitoies o' $ndia haBe decided to i(0+e(ent *T in 0+ace o' sa+es taA and a nu(;e o' othe state taAes. *T is a (u+ti)sta4e taA +eBied at each sta4e o' the Ba+ue addition chain, ?ith a 0oBision to a++o? $n0ut TaA Cedit !$TC# on taA 0aid at an ea+ie sta4e, ?hich can ;e a00o0iated a4ainst the *T +ia;i+ity on su;seuent sa+e. *T is intended to taA eBey sta4e o' sa+e ?hee so(e Ba+ue is added to a? (ateia+s, ;ut taA0ayes ?i++ eceiBe cedit 'o taA a+eady 0aid on 0ocue(ent sta4es. Thus, *T ?i++ ;e ?ithout the 0o;+e( o' dou;+e taAation as 0eBa+ent in the 0esent taA +a?s. %esent+y *T is 'o++o?ed in oBe 756 counties. One o' the (any easons unde+yin4 the shi't to *T is to do a?ay ?ith the distotions in ou eAistin4 taA stuctue that caBe u0 the county into a +a4e nu(;e o' s(a++ (a/ets athe than one ;i4 co((on (a/et. $n the 0esent sa+es taA stuctue taA is not +eBied on a++ the sta4es o' Ba+ue addition o sa+es and disti;ution channe+ ?hich (eans the (a4ins o' disti;utos< dea+es< etai+es et a+ ae not su;1ect to sa+es taA at 0esent. Thus, the 0esent 0icin4 stuctue needs to 'acto on+y the sin4+e 0oint +eBy co(0onent o' sa+es taA and the (a4ins o' (anu'actues and dea+es< etai+es etc, ae ?o/ed out accodin4+y. 9nde the *T e4i(e, due to (u+ti)0oint +eBy on the 0ice inc+udin4 Ba+ue additions at each and eBey esa+e, the (a4ins o' eithe the ese++e o the (anu'actue ?ou+d ;e educed un+ess the u+ti(ate 0ice is inceased. C38+3>.9 **+,8 o ,3/3,o.
Sales
5 Dasgupta, A.;200<, 6A White Paer
41 | P a g e
The basic principle o# VAT
The *a+ue dded TaA syste( has its oi4in in the "est Euo0ean counties. Genea++y, taAes ae +eBied on the se++in4 0ice o' the 0oduct. Today a? (ateia+ 0asses thou4h a nu(;e o' sta4es and 0ocesses unti+ it eaches the u+ti(ate sta4e. Fo instance, stee+ in4ots ae (ade in a stee+ (i++, ?hich ae then o++ed into 0+ates in a eo++in4 unit and a'te this a thid (anu'actue ?i++ (a/e 'unitue 'o( these 0+ates. Thus, out0ut o' the 'ist (anu'actue ;eco(es the in0ut o' the second (anu'actue, ?ho caies out 'uthe 0ocessin4 and su00+ies it to the thid (anu'actue. This 0ocess continues ti++ the 'ina+ 0oduct e(e4es. The 0oduct then 4oes to the ?ho+esa+e ?ho in tun ?i++ se++ it to the etai+e and he ?i++ 'ina++y tun it to the consu(e. Thus, i' taA is +eBied on the se++in4 0ice o' a 0oduct, the incidence o' taA 4oes on inceasin4 as the a? (ateia+ and 'ina+ 0oduct 0ass 'o( one sta4e to anothe, as sho?n in the ta;+e ;e+o?
Why a Ne$ Tax Syste%!
Thee ae seBen si4ni'icant easons to e'o( the taA syste(. 7# The then eAistin4 syste( ?as too co%plex . That taA code has eBo+Bed oBe (any yeas ceatin4 thousands o' con'+ictin4 de'initions and eAe(0tions. $t euied nu(eous co(0+eA 'o(s that ta/e an eno(ous a(ount o' ti(e and (oney to co(0+ete. $t a+so +ed to di''icu+ty in en'oce(ent and co++ection, and ceated hundeds o' +oo0ho+es that ae used to educe o eBade taAes. 5# $t ?as too easi+y eA0+oited 'o 0o+itica+ easons. TaA ates, incentiBes, and exe%ptions $ere altered continuously 'o 0o+itica+ easons. Thee ?as on4oin4 0o+itica+ 0essue to
a+te taA +a?s to ;ene'it o eAc+ude s0ecia+ inteest 4ou0s. -# The then eAistin4 stuctue ceated a 0oo econo(ic i(0act. The taA code ?as o'ten a+teed to 0oBide econo%ic sti%ulus #or various business se&%ents , ?ith du;ious esu+ts. $t ne4+ected the oBea++ hea+th o' the econo(y. $t o'ten discoua4es econo(ic 4o?th ;y ceatin4 a ne4atiBe incentiBe to ?o/ and to ean (oe. n idea+ syste( ?ou+d taA s0endin4 to ceate a 0ositiBe incentiBe to ean (oe, and saBe and inBest (oe.
42 | P a g e
# $t ?as a bureaucratic control . The $nco(e taA ReBenue SuBey euies a hu4e o0eatin4 ;ud4et and oBe 77,666 e(0+oyees to (ana4e this hu4e ;ueaucacy. This ?as non) 0oductiBe +a;ou that does not conti;ute diect+y to the econo(y. $n 'act, it is a (easua;+e dain on the econo(y ;oth in diect and indiect costs, esti(ated at oBe 866 ;i++ion annua++y. These educated and ta+ented 0eo0+e cou+d conti;ute 4eat+y in 0oductiBe 1o;s in the 0iBate secto. # $t euies a +a4e nu(;e o' pro#essionals in the 0iBate secto, +i/e taA accountants, +a?yes, and eBen entie co0oate de0at(ents, to adBise, inte0et and 0e0ae taA etuns. This 0ocess ?astes Ba+ua;+e esouces on non)0oductiBe +a;ou that cou+d othe?ise ;e used to ;ui+d ;usinesses and sten4then the econo(y. 8# $t 'oces ;usiness (ana4es to (a/e decisions ;ased on taA i(0+ications athe than 4ood ;usiness. Fo eAa(0+e, a co(0any decides not to ;ui+d a ne? asse(;+y 0+ant ;ecause o' ne4atiBe ca0ita+ inBest(ent taA 0o+icies, and thee;y de0iBes a co((unity 'o( ne? 1o;s and the co(0any 'o( 4o?th. # $t is ine''icient. $t 1ust costs too (uch to co++ect taAes this ?ay. $' ?e ae eBe 4oin4 to educe the nationa+ de'icit ?ithout ;ea/in4 the ;ac/ o' the taA 0aye, this is the 'ist 0+ace to educe ?aste. Who have to re&ister as a Taxpayer!
++ +e4a+ and natua+ 0esons ?ho 0oBide 4oods, ?o/s o seBices and haBe an annua+ sa+es tunoBe eAceedin4 the thesho+d +i(it shou+d e4iste as taA0aye . ++ i(0otes ae euied to e4iste ies0ectiBe o' thei annua+ tunoBe. $' the dea+e su00+ies on+y exempt goods and services he (ust sti++ noti'y the +oca+ *T o''ice i' his tunoBe eAceeds the threshold limit .
Tota++y eAe(0t ;usinesses ?i++ not ho?eBe ;e e4isteed as taA0ayes ;ut sti++ ;e su;1ected to +ate Bisits ;y *T o''icia+s to con'i( thei eAe(0t status. $t is the 0eson, NOT the ente0ise, ?ho is e4isteed 'o *T. The 0eson is on+y e4isteed once 'o a++ ente0ises<;anches
43 | P a g e
T?* :*48o. ,o @* 4*98,*4*> • • • • • •
So+e 0o0ieto !indiBidua+# $nco0oated
'e&istration #or VAT) (Procedure)
:o?n+oad o ;uy 'o(s FORM 7, FORM 5, FORM -, Fi++ the 00+ication in du0+icate and a''iA 0hoto4a0h. ttach the 'o++o?in4 docu(ents to the a00+ication a. Co0y o' the constitution docu(ent e.4. %atneshi0 deed 'o 0atneshi0 'i(, Me(oandu( and tic+es o' ssociation 'o a co(0any. ;. >oad Reso+ution authoiDin4 the si4natoy to si4n the a00+ication in case o' co(0any. c. %oo' o' identi'ication o' the authoiDed si4natoy e.4. Bote identity cad, 0ass0ot, diBin4 +icense. d. %oo' o' 0inci0a+ 0+ace o' ;usiness e.4. ent ecei0t, +ease a4ee(ent, e+ecticity ;i++. e. Su;(it the 'o(s to the 1uisdictiona+ Centa+ EAcise O''ice •
Su;(it the a;oBe in the neaest Co((ecia+ TaA O''ice.
•
On su;(ission, the Co((ecia+ TaA O''ice ?ou+d Bei'y i' the su;(ission is co(0+ete and desia;+e.
•
He ?ou+d (a/e a 'ie+d ins0ection o' you 0e(ises.
•
The O''ice o' Co((ecia+ TaA O''ice ?ou+d send you the *T CERT$F$CTE Once e4isteed, you ?i++ haBe to account 'o out0ut taA that is atti;uta;+e to you taAa;+e sa+es. =ou ?i++ a+so haBe to su;(it *T etuns (onth+y to the Co((ecia+ TaAes :e0at(ent and /ee0 0o0e ;oo/s o' accounts.
T5:* o 4*98,43,o."
44 | P a g e
VAT 'O@93,o45)"
++ those ;usinesses haBin4 nnua+ tunoBe eua+ to o (oe than +ac/s Caies out $nte State tansactions !$es0ectiBe to annua+ sa+es#
VAT 'Vo.,345)
ny one not 'u+'i++in4 the a;oBe conditions (ay e4iste hi(se+' unde *T Bo+untai+y /ee0in4 'utue in consideation. TOT
TunoBe TaA a+so ca++ed Co:o8,o. 8+?** o4 %: S P35*., S+?**8! S(a++ etai+es (ay not ;e in a 0osition to (aintain detai+ ecod o' taA 0aid on in0uts and taA 0aya;+e on 'ina+ 0oducts. $n such case, they ?i++ 0ay taA at '+at ate ;ased on thei tunoBe. Natua++y, they cannot issue a *T inBoice and cannot sho? sa+es taA se0aate+y in thei inBoice. The e(0o?eed co((ittee has a4eed that dea+es ?ith tunoBe u0 to Rs. 6 +a/hs 0.a. can ;e e+i4i;+e to the co(0osition sche(e, ;y 1ust 0ayin4 7 ?hich is no? 6.5 o' thei tunoBe as co(0osition taA. This o0tion is aBai+a;+e on+y 'o the ;usinesses +i/e >ic/ Ki+ens & :ha;as !that does not inc+ude estauants#. *eclaration + ,ay%ent o# Tax
One (ust co(0+ete a VAT >*+343,o. o4 (onth+y as 0e diections o' the *T o''ice 'o instance on the 78th day o' each (onth. On the 'o( you ?i++ sho? the a(ount o' *T you haBe 0aid to you su00+ies and the a(ount you haBe cha4ed you custo(es. The di''eence ;et?een the t?o 'i4ues is eithe the a(ount o' taA due to ;e 0aid to the *T o''ice o the a(ount o' cedit to ;e caied 'o?ad to the neAt (onth’s dec+aation. Cedit 'o 0uchases can on+y ;e c+ai(ed i' you ae in 0ossession o' an o''icia+ taA inBoice ?hich sho?s the a(ount o' *T you haBe 0aid on the tansaction. $' you ca+cu+ate that you o?e taA to the *T o''ice it shou+d ;e 0aid at the sa(e ti(e as you su;(it you dec+aation 'o(. $' you ae 4) | P a g e
o?ed taA it ?i++ ;e caied 'o?ad and you ?i++ deduct it 'o( the taA you o?e the 'o++o?in4 (onth. =ou ?i++ a+so need to sho? othe in'o(ation on you dec+aation.
In case o# Annual turnover %ore than - crore •
Month+y dec+aation & 0ay(ent o' Out0ut taA usin4 FORM 78 o
•
This is anneAue +ess etun
On the end o' eBey uate thou4h FORM 7 o
nneAues FORM 7, 7I, 5-, 5
o
FORM 5- & 5 inc+udes the Tota+ %uchases, in0ut taA, Tota+ Sa+es & in0ut taAes
In case o# Annual turnover less than - crore •
Fi+in4 o' uate+y etun usin4 FORM 7 ?ith FORM 7, 7I, 5-, 5 as anneAue
Comparison of VAT and Sales tax U.>*4 S3*8 T3/
U.>*4 VAT
TaA +eBied at the sta4e o' the 'ist sa+e !on+y 'o TaA +eBied and co++ected at eBey 0oint o' sa+e. cotton, +eathe and natua+ 4as at the 'ina+ sta4e#. TaA +eBied and co++ected at eBey 0oint o' sa+e TaA co++ected at eBey 0oint o' sa+e and the taA a+eady 0aid ;y the dea+e at the ti(e o' 0uchase SuccessiBe sa+es !esa+e# o' 4oods on ?hich taA is o' 4oods ?i++ ;e deducted 'o( the a(ount o' taA a+eady 0aid do not attact taA. 0aid at the neAt sa+e. :ea+es ese++in4 4oods on ?hich taA has a+eady :ea+es ese++in4 taA)0aid 4oods ?i++ haBe to ;een 0aid do not co++ect any taA on esa+e and 'i+e co++ect *T and 'i+e etuns and 0ay *T at eBey ni+ etuns sta4e o' sa+e !Ba+ue addition#. The (anu'actue ?i++ 0ay *T on the 4oods On 7I 4oods used as a? (ateia+s thee is no 0uchased as a? (ateia+s ;ut the *T 0aid on in0ut taA cedit on the taA 0aid on such 4oods and a? (ateia+s ?i++ ;e deducted on the sa+e o' 5 taA is +eBied on othe 4oods used as a? 4oods (anu'actued. Thus du0+ication o' taA (ateia+s 'o (anu'actue. ;uden on a? (ateia+s ?i++ ;e aBoided. Co(0utation o' taA +ia;i+ity is co(0+eA. $t is tans0aent and easie. Hu4e nu(;e o' 'o(s euied in 0ocedue. SiA taAation ates.
t the (ost a 'e? 'o(s euied. On+y t?o ates.
TaA on+y on 4oods. ssess(ent done ;y the de0at(ent.
TaA on 4oods and seBices ;oth. Se+')assess(ents ;y dea+es.
46 | P a g e
Advanta&es o# application o# VAT
$n its 0uest 'o(, *T is a taA that is +eBied on the Ba+ue added a+on4 di''eent sta4es o' 0oduction and disti;ution o' a co((odity o seBice. Thee'oe, it is a taA on the su( tota+ o' Ba+ue added, i.e., eua+ to the Ba+ue o' a co((odity o seBice. $n this sense, it shou+d ;e euiBa+ent to a etai+ sa+es taA that is co++ected on+y at the etai+ sta4e. >ut the etai+ sa+es taA is di''icu+t to co++ect ;ecause thee ae too (any etai+es o' Baious siDes. The *T, instead, can ;e co++ected at ea+ie sta4es o' 0oduction in 'a4(ents and can end at the etai+ sta4e. >ut the tota+ co++ected 'o( the *T shou+d ;e eAact+y the sa(e as i' co++ected on+y 'o( the etai+es o' the co((odity concened. ')
E.3,*8 +38+3>.9 **+,8 "-
The *T is 0e'eed ;ecause the *T (ini(iDes distotions. The si(0+e eAcises o the tunoBe taAes esu+ts in the unintended e''ect o' !i# taAin4 an out0ut !to4ethe ?ith its in0ut content# (oe than once as ?e++ as !ii# a00+yin4 a taA on the ea+ie 0aid in0ut taA +eadin4 to cascadin4. $t causes 0oduces to (oBe thei ca0ita+ o esouces a?ay 'o( the 0oduction o' one out0ut to anothe one ?hich does not su''e 'o( cascadin4. The *T, ;ecause it 4iBes cedit 'o in0ut taA ea+ie 0aid, aBoid the distotion as e0esented ;y (isa++ocation o ediection o' esouces 'o( one econo(ic actiBity to anothe. Thee'oe, it does not a+te 0oduces’ decisions to 0oduce 0aticu+a co((odities ?hich, in 4enea+, shou+d e'+ect the de(ands 'o( consu(es. Ho?eBe, 'o this ;ene'it to occu, the *T (ust 4iBe cedit 'o a? (ateia+s and ca0ita+ 4oods. ')
E38*8 3>.8,43,o."-
+thou4h thee ae 'easi;+e o0tions +i(itin4 the i(0act o' cascadin4, the uti+ity o' (u+ti0oint *T 4oes (uch ;eyond that. estin4 cascadin4 cou+d ;e consideed i(0otant to a e4i(e o' *T. NeBethe+ess, the institution o' *T in 'act shou+d ;e conceiBed a+so as an instu(ent o' taA ad(inistation an ad(inistation that chec/s eBasion thou4h a se+' (onitoin4 'eatue, and an account ;ased audit syste( that is e4aded as su0eio to the syste( o' 0hysica+ Bei'ication. The +atte a+eady haBin4 'a++en into dise0ute 'o causin4 distess to taA 'i+e’s needs to ;e eBentua++y a;andoned as its 0ositiBe i(0act on eBenue yie+d e(ains uestiona;+e. n account) ;ased audit shou+d not on+y ti4hten the taA net ;ut aise eBenues thou4h a ?ide acce0ta;i+ity o' a taA ad(inistation in the 0u;+ic eye. 4- | P a g e
')
I:4o*8 I.,*4.3,o.3 +o:*,,*.*88"-
Since *T has the 0otentia+ 'o e+i(inatin4 cascadin4, it is 0ossi;+e to desi4n the *T in a (anne that ?i++ ensue that eA0ots ae 'ee 'o( any taA ;uden !Deo)atin4#. Futhe, such ad1ust(ents unde the *T stuctue ae a+so "TO consistent. s a esu+t the co(0etitiBeness o' eA0ots in intenationa+ (a/ets is enhanced. EBen thou4h eA0ots ae 4enea++y eAe(0t 'o( sa+es taA and the ;uden o' in0ut taA e(;edded in the eA0ots is sou4ht to ;e e+i(inated thou4h the duty da?;ac/ (echanis(, neBethe+ess, the 0ocess is cu(;eso(e and the e''ect is not 'u++y ea+ised. s eA0ot co(0etitiBeness can ;e adBese+y in'+uenced ;y then taA 'acto, the ca0acity to Deo ate easi+y and accuate+y is an i(0otant as0ect o' the *T. ')
I:34,8 T43.8:34*.+5"-
nothe 0ositiBe as0ect o' the *T is its si(0+icity and tans0aency, ?hich co((odity taAes usua++y +ac/. The *T tends to co++ect the uantu( o' taA 0aya;+e at eBey sta4e o' tansaction. >oth 0oduces and consu(es, ?ho u+ti(ate+y ;ea the taA ;uden, ae 'u++y a?ae o' the taA +ia;i+ity, ?hich is not as easi+y ascetaina;+e in othe 'o(s o' co((odity taAation. ')
Bo53., So4+* o R**.*"-
"hen 'aced ?ith chonic ;ud4et de'icits and 4o?in4 eA0enditues, 4oBen(ents haBe ;een tunin4 to taA e'o( as a ?ay to aise eBenues. GoBen(ents see/ souces that ae inco(e e+astic and not sensitiBe to chan4es in 0ices o' 0aticu+a 4oods o inco(e souces. Since the *T 0e(its a e+atiBe+y +a4e coBea4e in as (uch as it is 0ossi;+e to eAtend it to Ba+ue addition at a++ sta4es in the 0oduction)disti;ution chain, the 0otentia+ 'o aisin4 esouces e''icient+y is 4enea++y hi4he. ')
Goo>@5* ,o T3/ o. T3/"
*T is the on+y taA that o''es 0ositiBe a+tenatiBes to the ne4atiBe i(0act o' indiect taAation. $t is an acce0ted 'act that co((odity taAes ceate seBee cascadin4 e''ect as the taAes +eBied at ea+ie sta4es o' 0oduction and disti;ution 4et taAed a4ain and a4ain at su;seuent 0oints. Conseuent+y, instead o' 0ayin4 taAes on the Ba+ue addition ;y a (anu'actue, ?ho+esa+e o etai+e, taA is 0aid on an in'+ated Ba+ue, ?hich inc+udes taAes a+eady 0aid at ea+ie sta4es. Such ano(a+ies esca+ate 0ices and encoua4e Betica+ inte4ation, ?hee the (anu'actue hi(se+' 4$ | P a g e
ties to ?ho+esa+e and etai+ the 4oods. *etica+ inte4ation has ;een es0onsi;+e 'o ecession and une(0+oy(ent 0aticu+a+y in deBe+o0in4 counties. *T has an in;ui+t deBice 'o educin4 the cascadin4 e''ect ;y estictin4 the +eBy to actua+ Ba+ue addition. $t encoua4es 4o?th ;y con'inin4 taA ;uden to the net econo(ic conti;ution o' the taA0aye. MoeoBe, since the Ca0ita+ $nBest(ent a+so 4ets taA e+ie'. *T can acce+eate econo(ic 4o?th ;y encoua4in4 (odeniDation and e0+ace(ent. VAT .##ect on In#lation
$n considein4 the intoduction o' *T, counties ae o'ten concened that it ?ou+d cause an in'+ationay s0ia+. Ho?eBe thee is no eBidence to su44est that this is tue. suBey o' OEC: counties that intoduced *T indicated that *T had +itt+e o no e''ect on 0ices. $n cases ?hee thee ?as an e''ect it ?as a one ti(e e''ect that si(0+y shi'ted the tend +ine o' the consu(e 0ice indeA !C%$#. To 4uad a4ainst any un'oeseen 0ice e''ects the authoities (ay conside a ti4hte (onetay 0o+icy stance at the intoduction o' *T. .##ects o# VAT on *istribution
*a+ue added taA is ?ide+y citiciDed as ;ein4 e4essiBe ?ith es0ect to inco(e that is its ;uden 'a++s heaBi+y on the 0oo than on the ich. This e(anates 'o( the 'act that consu(0tion as a shae o' inco(e 'a++s as inco(e ises. Hence a uni'o( *T ate 'a++s heaBi+y on the 0oo than the ich. This citicis( is Ba+id ?hen *T 0ay(ents ae eA0essed as a 0o0otion o' cuent inco(e. Ho?eBe i', 'o++o?in4 the 0e(ise that ?e+'ae is de(onstated ;y the +eBe+ o' consu(0tion athe than inco(e, consu(0tion is used as the deno(inato the i(0act o' *T ?ou+d ;e 0o0otiona+. 0o0otiona+ ;uden ?ou+d a+so ;e de(onstated i' +i'eti(e inco(e athe than cuent inco(e is used. +i'eti(e inco(e conce0t consides the 'act that (any inco(e eci0ients ae on+y te(0oai+y at +o?e inco(e ;ac/ets as thei eanin4s incease. $n ode to addess the e4essiBety o' *T the 'o++o?in4 (easues can ;e ta/en
•
The *T itse+' can ;e used to di''eentiate taAation o' consu(e ite(s that ae consu(ed 0i(ai+y ;y the 0oo such that they 0ay +ess o at Deo ate o to taA +uAuy 4oods at a hi4he than standad ate.
•
*T eAe(0tions (ay a+so ;e 4anted on 4oods and seBices that ae consu(ed (ost+y ;y the 0oo.
4 | P a g e
•
Euity concens (ay a+so ;e addessed thou4h othe ?ays, outside the *T syste(, such as othe taA and s0endin4 instu(ents o' 4oBen(ent. This cou+d ;e in the 'o( o' +o?e ;asic inco(e taA ates on the 0oo o so(e 0o)0oo eA0enditues o' 4oBen(ent. The use o' (u+ti0+e ates o' *T has ho?eBe ;een ?ide+y discoua4ed 'o Baious easons. These inc+ude o
The 'act that so(eti(es it is a+(ost i(0ossi;+e to di''eentiate ;et?een hi4he ua+ity eA0ensiBe 0oducts e.4. 'ood, consu(ed ;y the ich and odinay 0oducts consu(ed ;y the 0oo. Thus any concessions eAtended (ay tend to ;ene'it the ich (uch (oe than the 0oo.
o
$nceased costs o' *T ad(inistation as a di''eentiated ate stuctue ;in4s ?ith it 0o;+e(s o' de+ineatin4 0oducts and inte0etin4 the u+es on ?hich ate to use.
o
Si4ni'icant+y inceased costs o' taA co(0+iance 'o s(a++ 'i(s, ?hich ae usua++y una;+e to /ee0 se0aate ecods
EAe(0tions e'e to situations ?hee out0ut is not taAed ;ut taAes 0aid on in0uts ae not ecoBea;+e. The ationa+e ;ehind eAe(0tions is to educe ne4atiBe disti;utiona+ e''ects o' taA thou4h the e''ect on inco(es. The e''ects o' eAe(0tion (ay ;e as 'o++o?s
•
F3.9 o 4**.*8 eAe(0tions ;ea/ the *T chain. $' eAe(0tions ae 4anted at 0io
to the 'ina+ sa+e, it esu+ts in a +oss o' eBenue since Ba+ue added at the 'ina+ sta4e esca0es taA. •
U.-4*+o*4*> ,3/3,o. o' so(e inte(ediate 4oods (ay +ead to 0oduces su;stitutin4
a?ay 'o( such in0uts thus distotin4 the in0ut choices o' the said 0oduces. •
EAe(0tions (ay ceate incentiBes to “8* 8::5” i.e. taA aBoidance ;y Betica+ inte4ation.
•
EAe(0tions tend to 'eed on each othe 4iBin4 ise to a 0heno(enon ca++ed 2eAe(0tion cee03. This aises 'o( the 'act that each eAe(0tion 4iBes ise to 0essues on 'uthe
)0 | P a g e
eAe(0tion. Fo eAa(0+e ceatin4 an eAe(0tion to educe the taA ;uden on a 0aticu+a co((odity o 4oods (ay +ead to inceased 0essue 'o eAe(0tion o Deo atin4 o' in0uts used 'o the 0oduction o' such a co((odity.
>ased on the a;oBe, it is i(0otant that cae is ta/en ?hen intoducin4 eAe(0tions in ode to aBoid distotions in the 0oduction 0ocess as ?e++ as to (ini(iDe eBenue +oss esu+tin4 'o( such distotions. GiBen the 'act that the 0i(ay 0u0ose o' *T is to aise 4oBen(ent eBenue in an e''icient (anne and ?ith as +itt+e distotions o' econo(ic actiBity as 0ossi;+e, disti;ution e''ects ae 0eha0s ;ette addessed ;y othe 'o(s o' taA and 4oBen(ent eA0enditue 0o+icies ?hich can o'ten ;e ;ette ta4eted at these ai(s.
VAT .##ect on .cono%ic /ro$th
Econo(ic 4o?th can ;e 'aci+itated thou4h inBest(ent ;y ;oth 4oBen(ent and the 0iBate secto. SaBin4s ;y ;oth 0aties ae euied in ode to 'inance inBest(ent in a non)in'+ationay (anne. Co(0aed to othe ;oad+y ;ased taAes such as inco(e taA *T is neuta+ ?ith es0ect to choices on ?hethe to consu(e no? o saBe 'o 'utue consu(0tion. +thou4h *T educes the a;so+ute etun on saBin4 it does not educe the net ate o' etun on saBin4. $nco(e taA educes the net ate o' etun as ;oth the a(ount saBed as ?e++ as the etun on that saBin4 ae su;1ect to taA. $n this e4ad *T (ay ;e said to ;e a su0eio taA in 0o(otin4 econo(ic 4o?th than inco(e taA. Since *T does not in'+uence inBest(ent decisions on 'i(s, ;y inceasin4 thei costs, its e''ects on inBest(ent can ;e said to ;e neuta+.
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Goo>8 & S*4+*8 T3/ Mo>* o4 I.>3 /ST The $ay ahead
2$' the *a+ue dded TaA !*T# is consideed to ;e a (a1o i(0oBe(ent oBe the 0e)eAistin4 Centa+ eAcise duty at the nationa+ +eBe+ and the sa+es taA syste( at the State +eBe+, then the Goods and SeBices TaA !GST# ?i++ ;e a 'uthe si4ni'icant ;ea/thou4h the neAt +o4ica+ ste0 ) to?ads a co(0ehensiBe indiect taA e'o( in the county.38 By P. Chidambram
(?5 GST
$n the eAistin4 State)+eBe+ *T stuctue thee ae a+so cetain shotco(in4s as 'o++o?s. Thee ae, 'o instance, eBen no?, seBea+ taAes ?hich ae in the natue o' indiect taA on 4oods and seBices, such as +uAuy taA, entetain(ent taA, etc., and yet not su;su(ed in the *T. $n the GST, ;oth the cascadin4 e''ects o' CEN*T and seBice taA ae e(oBed ?ith set)o'', and a continuous chain o' set)o'' 'o( the oi4ina+ 0oduce’s 0oint and seBice 0oBide’s 0oint u0to the etai+e’s +eBe+ is esta;+ished ?hich educes the ;uden o' a++ cascadin4 e''ects. This is the essence o' GST, and this is ?hy GST is not si(0+y *T 0+us seBice taA ;ut an i(0oBe(ent oBe the 0eBious syste( o' *T and dis1ointed seBice taA. Ho?eBe, 'o this GST to ;e intoduced at the State +eBe+, it is essentia+ that the States shou+d ;e 4iBen the 0o?e o' +eBy o' taAation o' a++ seBices. This 0o?e o' +eBy o' seBice taAes has so +on4 ;een on+y ?ith the Cente. Constitutiona+ (end(ent ?i++ ;e (ade 'o 4iBin4 this 0o?e a+so to the States. MoeoBe, ?ith the intoduction o' GST, ;uden o' Centa+ Sa+es TaA !CST# ?i++ a+so ;e e(oBed. The GST at the State)+eBe+ is, thee'oe, 1usti'ied 'o !a# dditiona+ 0o?e o' +eBy o' taAation o' seBices 'o the States, !;# Syste( o' co(0ehensiBe set)o'' e+ie', inc+udin4 set)o'' 'o cascadin4 ;uden o' CEN*T and seBice taAes, !c# Su;su(in4 o' seBea+ taAes in the GST and
Chi&a7/ra7, P., ;200<, 6 =irst Disc/ssion Paer
!d# Re(oBa+ o' ;uden o' CST. >ecause o' the e(oBa+ o' cascadin4 e''ect, the ;uden o' taA unde GST on 4oods ?i++, in 4enea+, 'a++.
Salient #eatures o# the /ST %odel 0
Kee0in4 in Bie? the e0ot o' the Joint "o/in4 Gou0 on Goods and SeBices TaA, the Bie?s eceiBed 'o( the States and GoBen(ent o' $ndia, a dua+ GST stuctue ?ith de'ined 'unctions and es0onsi;i+ities o' the Cente and the States is eco((ended. n a00o0iate (echanis( that ?i++ ;e ;indin4 on ;oth the Cente and the States ?ou+d ;e ?o/ed out ?hee;y the ha(onious ate stuctue a+on4 ?ith the need 'o 'uthe (odi'ication cou+d ;e u0he+d, i' necessay ?ith a co++ectiBe+y a4eed Constitutiona+ (end(ent. Sa+ient 'eatues o' the 0o0osed (ode+ ae as 'o++o?s •
The GST sha++ haBe t?o co(0onents one +eBied ;y the Cente !heeina'te e'eed to as Centa+ GST#, and the othe +eBied ;y the States !heeina'te e'eed to as State GST#. Rates 'o Centa+ GST and State GST ?ou+d ;e 0esci;ed a00o0iate+y, e'+ectin4 eBenue consideations and acce0ta;i+ity. This dua+ GST (ode+ ?ou+d ;e i(0+e(ented thou4h (u+ti0+e statutes !one 'o CGST and SGST statute 'o eBey State#. Ho?eBe, the ;asic 'eatues o' +a? such as cha4ea;i+ity, de'inition o' taAa;+e eBent and taAa;+e 0eson, (easue o' +eBy inc+udin4 Ba+uation 0oBisions, ;asis o' c+assi'ication etc. ?ou+d ;e uni'o( acoss these statutes as 'a as 0actica;+e.
•
The Centa+ GST and the State GST ?ou+d ;e a00+ica;+e to a++ tansactions o' 4oods and seBices (ade 'o a consideation eAce0t the eAe(0ted 4oods and seBices, 4oods ?hich ae outside the 0uBie? o' GST and the tansactions ?hich ae ;e+o? the 0esci;ed thesho+d +i(its.
•
The Centa+ GST and State GST ae to ;e 0aid to the accounts o' the Cente and the States se0aate+y. $t ?ou+d haBe to ;e ensued that account)heads 'o a++ seBices and 4oods ?ou+d haBe indication ?hethe it e+ates to Centa+ GST o State GST !?ith identi'ication o' the State to ?ho( the taA is to ;e cedited#.
GDasgupta, A.;200<, 6 =irst Disc/ssion Paer
•
Since the Centa+ GST and State GST ae to ;e teated se0aate+y, taAes 0aid a4ainst the Centa+ GST sha++ ;e a++o?ed to ;e ta/en as in0ut taA cedit !$TC# 'o the Centa+ GST and cou+d ;e uti+iDed on+y a4ainst the 0ay(ent o' Centa+ GST. The sa(e 0inci0+e ?i++ ;e a00+ica;+e 'o the State GST. taA0aye o eA0ote ?ou+d haBe to (aintain se0aate detai+s in ;oo/s o' account 'o uti+iDation o e'und o' cedit. Futhe, the u+es 'o ta/in4 and uti+iDation o' cedit 'o the Centa+ GST and the State GST ?ou+d ;e a+i4ned.
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Coss uti+iDation o' $TC ;et?een the Centa+ GST and the State GST ?ou+d not ;e a++o?ed eAce0t in the case o' inte)State su00+y o' 4oods and seBices unde the $GST (ode+ ?hich is eA0+ained +ate. The Centa+ GST and State GST ae to ;e 0aid to the accounts o' the Cente and the States se0aate+y. Since the Centa+ GST and State GST ae to ;e teated se0aate+y, in 4enea+, taAes 0aid a4ainst the Centa+ GST sha++ ;e a++o?ed to ;e ta/en as in0ut taA cedit !$TC# 'o the Centa+ GST and cou+d ;e uti+iDed on+y a4ainst the 0ay(ent o' Centa+ GST. The sa(e 0inci0+e ?i++ ;e a00+ica;+e 'o the State GST. To the eAtent 'easi;+e, uni'o( 0ocedue 'o co++ection o' ;oth Centa+ GST and State GST ?ou+d ;e 0esci;ed in the es0ectiBe +e4is+ation 'o Centa+ GST and State GST. The ad(inistation o' the Centa+ GST ?ou+d ;e ?ith the Cente and 'o State GST ?ith the States. The taA0aye ?ou+d need to su;(it 0eiodica+ etuns to ;oth the Centa+ GST authoity and to the concened State GST authoities. Each taA0aye ?ou+d ;e a++otted a %N +in/ed taA0aye identi'ication nu(;e ?ith a tota+ o' 7-<7 di4its. This ?ou+d ;in4 the GST %N)+in/ed syste( in +ine ?ith the 0eBai+in4 %N);ased syste( 'o $nco(e taA 'aci+itatin4 data eAchan4e and taA0aye co(0+iance. The eAact desi4n ?ou+d ;e ?o/ed out in consu+tation ?ith the $nco(e) TaA :e0at(ent. Kee0in4 in (ind the need o' taA 0ayes conBenience, 'unctions such as assess(ent, en'oce(ent, scutiny and audit ?ou+d ;e undeta/en ;y the authoity ?hich is co++ectin4 the taA, ?ith in'o(ation shain4 ;et?een the Cente and the States.
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Taxes subsu%ed by /ST 1
The Baious Centa+, State and Loca+ +eBies ?ee eAa(ined to identi'y thei 0ossi;i+ity o' ;ein4 su;su(ed unde GST. "hi+e identi'yin4, the 'o++o?in4 0inci0+es ?ee /e0 t in (ind •
TaAes o +eBies to ;e su;su(ed shou+d ;e 0i(ai+y in the natue o' indiect taAes, eithe on the su00+y o' 4oods o on the su00+y o' seBices.
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TaAes o +eBies to ;e su;su(ed shou+d ;e 0at o' the tansaction chain ?hich co((ences ?ith i(0ot<(anu'actue< 0oduction o' 4oods o 0oBision o' seBices at one end and the consu(0tion o' 4oods and seBices at the othe.
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The su;1u4ation shou+d esu+t in 'ee '+o? o' taA cedit in inta and inte)State +eBe+s.
•
The taAes, +eBies and 'ees that ae not s0eci'ica++y e+ated to su00+y o' 4oods & seBices shou+d not ;e su;su(ed unde GST.
•
ReBenue 'ainess 'o ;oth the 9nion and the States indiBidua++y ?ou+d need to ;e atte(0ted.
On a00+ication o' the a;oBe 0inci0+es, the 'o++o?in4 Centa+ TaAes ?ou+d ;e, to ;e4in ?ith, su;su(ed unde the Goods and SeBices TaA •
Centa+ EAcise :uty
•
dditiona+ EAcise :uties
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The EAcise :uty +eBied unde the Medicina+ and Toi+eties %e0aation ct
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SeBice TaA
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dditiona+ Custo(s :uty, co((on+y /no?n as CounteBai+in4 :uty !C*:#
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S0ecia+ dditiona+ :uty o' Custo(s ) !S:#
•
Sucha4es, and
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Cesses.
Fo++o?in4 State taAes and +eBies ?ou+d ;e, to ;e4in ?ith, su;su(ed unde GST •
*T < Sa+es taA
•
Entetain(ent taA !un+ess it is +eBied ;y the +oca+ ;odies#.
+ Dasgupta, A.;200<, 6 =irst Disc/ssion Paer
•
LuAuy taA
•
TaAes on +ottey, ;ettin4 and 4a(;+in4.
•
State Cesses and Sucha4es in so 'a as they e+ate to su00+y o' 4oods and seBices.
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Enty taA not in +ieu o' Octoi.
The i++ustation sho?n ;e+o? indicates, in te(s o' a hy0othetica+ eAa(0+e ?ith a (anu'actue, one ?ho+esa+e and one etai+e, ho? GST ?i++ ?o/. Let us su00ose that GST ate is 76, ?ith the (anu'actue (a/in4 Ba+ue addition o' Rs.-6 on his 0uchases ?oth Rs.766 o' in0ut o' 4oods and seBices used in the (anu'actuin4 0ocess. The (anu'actue ?i++ then 0ay net GST o' Rs. - a'te settin4)o'' Rs. 76 as GST 0aid on his in0uts !i.e. $n0ut TaA Cedit# 'o( 4oss GST o' Rs. 7-. The (anu'actue se++s the 4oods to the ?ho+esa+e. "hen the ?ho+esa+e se++s the sa(e 4oods a'te (a/in4 Ba+ue addition o' !say#, Rs. 56, he 0ays net GST o' on+y Rs. 5, a'te settin4)o'' o' $n0ut TaA Cedit o' Rs. 7- 'o( the 4oss GST o' Rs. 7 to the (anu'actue. Si(i+a+y, ?hen a etai+e se++s the sa(e 4oods a'te a Ba+ue addition o' !say# Rs. 76, he 0ays net GST o' on+y Re.7, a'te settin4)o'' Rs.7 'o( his 4oss GST o' Rs. 78 0aid to ?ho+esa+e. Thus, the (anu'actue, ?ho+esa+e and etai+e haBe to 0ay on+y Rs. 8 ! Rs. -PRs. 5PRe. 7# as GST on the Ba+ue addition a+on4 the entie Ba+ue chain 'o( the 0oduce to the etai+e, a'te settin4) o'' GST 0aid at the ea+ie sta4es. The oBea++ ;uden o' GST on the 4oods is thus (uch +ess. This is sho?n in the ta;+e ;e+o?. The sa(e i++ustation ?i++ ho+d in the case o' 'ina+ seBice 0oBide as ?e++.
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/ST2s bene#it to the s%all entrepreneurs and s%all traders
The 0esent thesho+d 0esci;ed in di''eent State *T cts ;e+o? ?hich *T is not a00+ica;+e Baies 'o( State to State. The eAistin4 thesho+d o' 4oods unde State *T is Rs. +a/hs 'o a (a1oity o' ;i44e States and a +o?e thesho+d 'o Noth Easten States and S0ecia+ Cate4oy States. uni'o( State GST thesho+d acoss States is desia;+e and, thee'oe, the E(0o?eed Co((ittee has eco((ended that a thesho+d o' 4oss annua+ tunoBe o' Rs. 76 +a/h ;oth 'o 4oods and seBices 'o a++ the States and 9nion Teitoies (ay ;e ado0ted ?ith adeuate co(0ensation 'o the States !0aticu+a+y, the States in Noth)Easten Re4ion and S0ecia+ Cate4oy States# ?hee +o?e thesho+d had 0eBai+ed in the *T e4i(e. Kee0in4 in Bie? the inteest o' s(a++ tades and s(a++ sca+e industies and to aBoid dua+ conto+, the States consideed that the thesho+d 'o Centa+ GST 'o 4oods (ay ;e /e0t at Rs.7. coe and the thesho+d 'o seBices shou+d a+so ;e a00o0iate+y hi4h. This aisin4 o' thesho+d ?i++ 0otect the inteest o' s(a++ tades.
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Co.+8o. Li'! "f Sl(' T) Offic(' i# !+( S!!( "f M+*'+!*
There are total Sl(' T) Offic( located all over the >aharashtra. )ut which some of them are in2 M&m/i B'ead PuartersC, andra, 3aigad B8ivisionC, Thane B8ivisionC, Nalyan, alasopara, "alghar, "une B8ivisionC, +olapur, Nolhapur B8ivisionC, +atara, +angli, 3atnagiri, asik B8ivisionC, Ahmednagar, Aurangabad B8ivisionC, agpur B8ivisionC, $ardha, Amaravati B8ivisionC, Akola, and many moreQ
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>in4in4 a;out an inte4ation o' a++ taAes +eBied on 4oods and seBices in a 'edea+ 0o+ity ?ith sha0 disti;ution o' +e4is+atiBe 0o?es is a Hecu+ean tas/ to say the +east. The Constitution o' $ndia, 7I6 de(acates taAin4 0o?es in a t?o)tie stuctue ?heein +eBies on 0oduction and intenationa+ i(0ots ae ?ith the 9nion and 0ost) 0oduction +eBies est ?ith the states. The Cente +eBies duties o' eAcise on (anu'actues and i(0ot
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