Description
This is a presentation explains VAT Value added tax, schemes, flow chart, GST, central taxes, state taxes,
Indirect Taxes
VAT
? Value Added Tax ? In India, VAT is a State subject ? Concept of VAT is more than 88 years old ? VAT is being implemented in more than 140 countries.
What is VAT ?
• VAT is an improvised Sales Tax, Trade Tax or Retail Tax System • VAT is levied at every point of sale on the value added • Tax credit is given on the VAT paid at earlier stage.
• Thus, VAT is a tax on profit, services & overheads.
Why VAT ?
• • • • Simple tax calculation & collection Gives a transparent tax administration Broaden the tax base Remove cascading effect (no set-off on certain items) : i.e tax on tax • Remove inequality of the tax payment under various taxation laws. • To check evasion at first point • Globalization & liberalization
Advantages of VAT
• Invoice method • Minimum forms • Self Assessment • Self policing • Increased transparency • Lower rates of taxation • Only two slabs, better classification of goods through HSN
(Harmonised System of Nomenclature) • Provisional refund • Central Sales Tax to be phased out
International Practices
Sr 1
2 3 4 5
Country Korea
Pakistan
Joined VAT in 1977
1990
Bangladesh 1991 China Sri Lanka 1994 1998
VAT scheme
• No tax on labour, consultancy & services • No tax on grains, vegetables, green fruits, fabric, sugar, etc. • Scrap, mineral water, mango pulp, cooked food, etc, taxable • Mainly two slabs: 4% and 12.5% • Previous industrial incentives continued
VAT design
Exempt Goods
Country Liqors
RNR
54
items
VAT Rates VAT Rates 60 %
12.5 %
1%
Gold,Silver,Precious Metals,Articles,Ornaments, Precious Stones
4%
Raw Materials & Essential Goods
VAT Flow-Chart
1st point
Selling Price
Rate of VAT Tax Total Tax Credit
2nd point
3rd point
Rs. 100
4% Rs. 4
4.0
Rs. 120
4% Rs. 4.80
Total
130
0.80
4% 5.20
Rs. 104
Rs. 4
124.80
Rs. 4.00 Rs. 0.80
135.20
4.80 0.40
Net VAT tax paid to Government = 4 + 0.80 + 0.40 = 5.20 Total
Goods & Service Tax-- Present scenario
• GOODS
– Tax by both centre and states – Tax on tax – Tax credit in not allowed mutually – Parallel tax administration – Poor information exchange leading to evasion – Issues of misclassification VAT, Excise, Octroi
• SERVICES
– Tax by centre except few services – Selected coverage – Tax credit of goods not allowed – Poor tax administration due to lack of reach – Massive evasion – Issues of categorization Services tax, Passenger tax, Luxury tax, Entertainment tax
What is GST?
• GST is a comprehensive value added tax on goods and services • Main feature of GST are
– A value added tax collected at all stages of supply chain or transactions – No differentiation between goods and services – Full input tax credit to all without any limit or barrier – Integration of all indirect taxes on goods and services
Why is it required?
• Present system :
– Multiplicity of taxes and tax collection agencies – Cascading of tax burden since input tax credit is not allowed (tax on tax) – Distortion in economy – High number of litigations – Impediment to free inter-state trade – Poor transparency – High collection and compliance cost – International competitiveness is lost
Why GST?
• GST means
– – – – Simple tax structure with just one or two tax rates Uniform single and lower tax across the country Lower collection and compliance cost Wider base and better compliance mean greater revenue collection – Complete input tax credit ensures self-policing bringing better compliance – Greater transparency – Single national market contributing to national integration further
What all taxes it will subsume?
• Central taxes
– – – – – – Excise duty Service tax CVD on imports CST Add. Excise duty Surcharges on central taxes
• State taxes
– – – – – – VAT Motor Spirit Tax/cess Entry tax Entertainment Tax Luxury tax Octroi
– – – – –
Excise duty Passenger tax Electricity duty Vehicle/road tax Stamp duty
What is the suitable model for India?
• Different models are available
– Model-1, Concurrent tax jurisdiction of centre and state on same tax base – Model-2, Division of GST sectors between centre and states – Model-3, Common GST base used for taxation at different rates by centre and state – Model-4, single tax collected by one agency to be distributed/ shared between centre and state Model-3 is considered suitable for a federal system like India.
Features of proposed model
• Common tax base
– Same calculation of taxable turnover for both centre and state
• Concurrent tax
– Centre and state both to charge tax on same turnover at respective rates of tax
• Power of levy and appropriation with both centre and state
– Collection , ITC, refund, and use of fund is totally independent
• Tax rates to be decided with mutual consultation
– Tax on same turnover, hence total tax is sum of central and state taxes which needs to be worked out jointly
• Collection mechanism may be mutually worked out
– Return is common, and so are calculations. Can dealer be subjected to a single agency !
Issues which need to be sorted out
• Subsumation of taxes
– Central surcharges – Octroi – Purchase tax
• Tax administration
– Sharing of dealers for the purpose (it is agreed to give all dealers below a threshold limit to the states)
• Service tax
– Principle of collection and transfer in case of interstate performance of services
Issues which need to be sorted out
• Tax rates
– Single or double – Actual rates based on concept of revenue neutral rate – Power of additional levy in case of contingencies
• Legislation
– Uniform law is required for proper administration, but legal and constitutional mechanism need to be worked out
• Joint authority
– For the purpose of rate decisions – Administrative clarifications
doc_746403455.ppt
This is a presentation explains VAT Value added tax, schemes, flow chart, GST, central taxes, state taxes,
Indirect Taxes
VAT
? Value Added Tax ? In India, VAT is a State subject ? Concept of VAT is more than 88 years old ? VAT is being implemented in more than 140 countries.
What is VAT ?
• VAT is an improvised Sales Tax, Trade Tax or Retail Tax System • VAT is levied at every point of sale on the value added • Tax credit is given on the VAT paid at earlier stage.
• Thus, VAT is a tax on profit, services & overheads.
Why VAT ?
• • • • Simple tax calculation & collection Gives a transparent tax administration Broaden the tax base Remove cascading effect (no set-off on certain items) : i.e tax on tax • Remove inequality of the tax payment under various taxation laws. • To check evasion at first point • Globalization & liberalization
Advantages of VAT
• Invoice method • Minimum forms • Self Assessment • Self policing • Increased transparency • Lower rates of taxation • Only two slabs, better classification of goods through HSN
(Harmonised System of Nomenclature) • Provisional refund • Central Sales Tax to be phased out
International Practices
Sr 1
2 3 4 5
Country Korea
Pakistan
Joined VAT in 1977
1990
Bangladesh 1991 China Sri Lanka 1994 1998
VAT scheme
• No tax on labour, consultancy & services • No tax on grains, vegetables, green fruits, fabric, sugar, etc. • Scrap, mineral water, mango pulp, cooked food, etc, taxable • Mainly two slabs: 4% and 12.5% • Previous industrial incentives continued
VAT design
Exempt Goods
Country Liqors
RNR
54
items
VAT Rates VAT Rates 60 %
12.5 %
1%
Gold,Silver,Precious Metals,Articles,Ornaments, Precious Stones
4%
Raw Materials & Essential Goods
VAT Flow-Chart
1st point
Selling Price
Rate of VAT Tax Total Tax Credit
2nd point
3rd point
Rs. 100
4% Rs. 4
4.0
Rs. 120
4% Rs. 4.80
Total
130
0.80
4% 5.20
Rs. 104
Rs. 4
124.80
Rs. 4.00 Rs. 0.80
135.20
4.80 0.40
Net VAT tax paid to Government = 4 + 0.80 + 0.40 = 5.20 Total
Goods & Service Tax-- Present scenario
• GOODS
– Tax by both centre and states – Tax on tax – Tax credit in not allowed mutually – Parallel tax administration – Poor information exchange leading to evasion – Issues of misclassification VAT, Excise, Octroi
• SERVICES
– Tax by centre except few services – Selected coverage – Tax credit of goods not allowed – Poor tax administration due to lack of reach – Massive evasion – Issues of categorization Services tax, Passenger tax, Luxury tax, Entertainment tax
What is GST?
• GST is a comprehensive value added tax on goods and services • Main feature of GST are
– A value added tax collected at all stages of supply chain or transactions – No differentiation between goods and services – Full input tax credit to all without any limit or barrier – Integration of all indirect taxes on goods and services
Why is it required?
• Present system :
– Multiplicity of taxes and tax collection agencies – Cascading of tax burden since input tax credit is not allowed (tax on tax) – Distortion in economy – High number of litigations – Impediment to free inter-state trade – Poor transparency – High collection and compliance cost – International competitiveness is lost
Why GST?
• GST means
– – – – Simple tax structure with just one or two tax rates Uniform single and lower tax across the country Lower collection and compliance cost Wider base and better compliance mean greater revenue collection – Complete input tax credit ensures self-policing bringing better compliance – Greater transparency – Single national market contributing to national integration further
What all taxes it will subsume?
• Central taxes
– – – – – – Excise duty Service tax CVD on imports CST Add. Excise duty Surcharges on central taxes
• State taxes
– – – – – – VAT Motor Spirit Tax/cess Entry tax Entertainment Tax Luxury tax Octroi
– – – – –
Excise duty Passenger tax Electricity duty Vehicle/road tax Stamp duty
What is the suitable model for India?
• Different models are available
– Model-1, Concurrent tax jurisdiction of centre and state on same tax base – Model-2, Division of GST sectors between centre and states – Model-3, Common GST base used for taxation at different rates by centre and state – Model-4, single tax collected by one agency to be distributed/ shared between centre and state Model-3 is considered suitable for a federal system like India.
Features of proposed model
• Common tax base
– Same calculation of taxable turnover for both centre and state
• Concurrent tax
– Centre and state both to charge tax on same turnover at respective rates of tax
• Power of levy and appropriation with both centre and state
– Collection , ITC, refund, and use of fund is totally independent
• Tax rates to be decided with mutual consultation
– Tax on same turnover, hence total tax is sum of central and state taxes which needs to be worked out jointly
• Collection mechanism may be mutually worked out
– Return is common, and so are calculations. Can dealer be subjected to a single agency !
Issues which need to be sorted out
• Subsumation of taxes
– Central surcharges – Octroi – Purchase tax
• Tax administration
– Sharing of dealers for the purpose (it is agreed to give all dealers below a threshold limit to the states)
• Service tax
– Principle of collection and transfer in case of interstate performance of services
Issues which need to be sorted out
• Tax rates
– Single or double – Actual rates based on concept of revenue neutral rate – Power of additional levy in case of contingencies
• Legislation
– Uniform law is required for proper administration, but legal and constitutional mechanism need to be worked out
• Joint authority
– For the purpose of rate decisions – Administrative clarifications
doc_746403455.ppt