Value Added Tax

Topics: Value added tax, Tax, Sales tax Pages: 12 (3070 words) Published: April 23, 2011

Financial Management

Value Added Tax; Goods and Service Tax


Prepared for

Prof. Dr. Melati bt Ahmad Anuar

April, 2011

1. Introduction

VAT is a system in which the tax is collected on the value added to the goods at each stage of sales. The dealer selling the goods collects tax on the full price at which he sells the goods. At the end of a tax period he reduces from the tax so collected by him, the tax which has been charged to by the dealers from whom he purchased goods during the tax period and deposits the balance to the Government treasury. In other words the "value added" to a product by a business is the sale price charged to its customer, minus the cost of materials and other taxable inputs. A VAT is like a sales tax in that ultimately only the end consumer is taxed. It differs from the sales tax in that, with the latter, the tax is collected and given to the government only once, at the point of purchase by the end consumer. With the VAT, collections, remittances to the government, and credits for taxes already paid occur each time a business in the supply chain purchases products.

2. Advantages of VAT

* It is simple
* The burden of taxation is shared.
* Fewer tax slabs
* Simpler procedures
* Less discretion to the officials
* More transparent
* Well Defined Refund Procedure in place
* Refund on application, in case ITC (International Trade Comission) exceeds tax liability.

3. Who are liable to pay tax under VAT?

* Taxable person: Liable to pay VAT as per schedule.
* Registered Person: Liable to pay lump-sum on his taxable Turnover at the specified rate. * Casual Trader: Liable to pay VAT as per schedule.

4.1. B-Registration
All persons except casual traders who are liable to pay tax under VAT are required to get registered. Therefore, there are two types of mutually exclusive forms of registration under VAT:

VAT Registration: Taxable Person
TOT Registration: Registered Person

Figure 1.

VAT Registration| TOT Registration|
For taxable persons| For Register able persons|
Taxable Quantum| Taxable Quantum|
Importer Re 1| TOT Registration is applicable to theperson having turnover from Re 5 Lacto 50 Lac| Exporter Re 1| | Liable to pay Purchase Tax Re 1| |

Manufacturer Re One Lac| | Consignment/Branch Transfer Re 1| |
Voluntary Registration Re five Lac| Persons having CST Registration arenot eligible for TOT Registration| Other Persons Re 50 Lac| | ITC is available| ITC is not available|

VAT to be charged on sales, specifiedin Schedule| Taxable Turnover to be taxed, to benotified not exceeding 2 %| Can issue VAT invoice as well as RetailInvoice| Can issue only Retail Invoice|

The existing registered dealers are required to make an application in form VAT 1 along with Registration Certificate issued within 30 days of appointed day to get registration under VAT. No fee will be chargeable from such dealers. No fresh surety is required to be furnished; however, confirmation of sureties shall be required within a period of one year.

4.2. Procedure for Registration in case of new dealers under VAT:

An application in the form of VAT-1 prescribed under VAT for registration. The application duly signed by the authorized person shall be submitted to the designated officer in charge of the area. The application for registration is required to be accompanied by the following:

1. Receipt in respect of Fee Deposited amounting to Rs. 500 (received standard) 2. Security in the form of:
* Personal Bond with two solvent sureties to the...
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