ADVANTAGE AND DISADVANTAGES OF VAT

[abhishreshthaa]

ADVANTAGE:

• Coverage
  
  
• Revenue security
  
  
• Selectivity
  
  
• Co-ordination of VAT with direct taxation

DISADVANTAGES:

• VAT is regressive
  
  
• VAT is too difficult to operate from the position of both the administration and business.
  
  
• VAT is inflationary 
  
  
• VAT favors the capital intensive firm
  
  
  
• Loss Of Revenue to the government

GOOD/SERVICE ELIGIBLE FOR VAT TAX:

• More than 550 items would be covered under the new Indian VAT regime of which 46 natural and unprocessed local products would be exempt from VAT
  
  
• About 270 items including drugs and medicines, all agricultural and industrial inputs, capital goods and declared goods would attract four per cent VAT in India.
  
  
  
• The remaining items would attract 12.5 per cent VAT. Precious metals like gold and bullion would be taxed at one per cent.
  
  
• Lower Rate of 4% for Industrial Inputs and Raw Material
  
  
• Higher Rate of 20% on Non-essential commodities (Petroleum products, Lottery tickets, Liquor.) at discretion of State Government.
  
  
• Three items - sugar, textile and tobacco - covered under Additional Excise Duties, will not be under VAT regime for one year but the existing arrangement would continue.
  
  
• The Indian VAT panel relaxed the threshold limit for traders coming under VAT regime from Rs 5-50 lakh of turnover from the previous stance of Rs 5-40 lakh.

STATE VAT:

• Empowered Committee of state Finance ministers would be the final authority on the model VAT law – State Government cannot deviate.
  
  
• Central Sales Tax will be phased out in stages – from 4% to 2% to Nil.
  
  
• Sales Tax Incentives will be phased out
  
  
• States will get compensation for loss of revenue from central Government.

 

[Business-education]

Definition of VAT

A tax on the amount by which the value of an article has been increased at each stage of its production or distribution. Here are some important objectives of Vat given below:

Objectives of VAT:

1. Increase in government revenue
2. Developing stable source of government revenue
3. To make the tax system more transparent
4. To avoid cascading effect.
5. To reduce tax evasion practices
6. To increase in exports.

 

[jitendra05]

ADVANTAGE:

• Coverage
  
  
• Revenue security
  
  
• Selectivity
  
  
• Co-ordination of VAT with direct taxation

DISADVANTAGES:

• VAT is regressive
  
  
• VAT is too difficult to operate from the position of both the administration and business.
  
  
• VAT is inflationary 
  
  
• VAT favors the capital intensive firm
  
  
  
• Loss Of Revenue to the government

GOOD/SERVICE ELIGIBLE FOR VAT TAX:

• More than 550 items would be covered under the new Indian VAT regime of which 46 natural and unprocessed local products would be exempt from VAT
  
  
• About 270 items including drugs and medicines, all agricultural and industrial inputs, capital goods and declared goods would attract four per cent VAT in India.
  
  
  
• The remaining items would attract 12.5 per cent VAT. Precious metals like gold and bullion would be taxed at one per cent.
  
  
• Lower Rate of 4% for Industrial Inputs and Raw Material
  
  
• Higher Rate of 20% on Non-essential commodities (Petroleum products, Lottery tickets, Liquor.) at discretion of State Government.
  
  
• Three items - sugar, textile and tobacco - covered under Additional Excise Duties, will not be under VAT regime for one year but the existing arrangement would continue.
  
  
• The Indian VAT panel relaxed the threshold limit for traders coming under VAT regime from Rs 5-50 lakh of turnover from the previous stance of Rs 5-40 lakh.

STATE VAT:

• Empowered Committee of state Finance ministers would be the final authority on the model VAT law – State Government cannot deviate.
  
  
• Central Sales Tax will be phased out in stages – from 4% to 2% to Nil.
  
  
• Sales Tax Incentives will be phased out
  
  
• States will get compensation for loss of revenue from central Government.

Hey abhi, thanks for sharing the information and explaining the advantages and disadvantages of VAT. Well, i am also uploading a document where you would find some more points regarding VAT which stands for value added tax.