Description
This is a presentation about indirect 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 Net VAT
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
Total tax paid to Government = 4 + 0.80 + 0.40 = 5.20
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 , 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_748681466.pptx
This is a presentation about indirect 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 Net VAT
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
Total tax paid to Government = 4 + 0.80 + 0.40 = 5.20
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 , 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_748681466.pptx