Value Added Tax for Pcc and Ipcc
1. Value added tax in short VAT, was a tax introduced as early as 1919 by Dr.Wilhelm Von Siemens in Germany as a tax on improved turnover. Professor Thomas.S.Adams suggested this tax in USA as a sales tax with a credit or refund for taxes paid by the producer on goods bought for resale or for use in production of goods. However till 1953 no country introduced VAT. In the year 1954 France introduced it and since then many countries have adopted this progressive method of taxation.
2. Value added tax is a multi point tax. Tax already paid is allowed to be adjusted against tax payable.
Example: Tax has to be paid when hotel Saravana Bhavan sells fried rice. The tax has already paid on the oil used to make fried rice is allowed to be adjusted against the tax payable on sale of fried rice.
A pen purchased say reynolds from the retail shop suffers tax at the hands of the retailer let us say Rs.2. The retailer when he purchased the pen from the wholesaler would have paid tax to the wholesaler say Re.1. This tax of Re.1 is allowed to be adjusted against Rs.2 the tax payable. Hence the balance tax to be paid by the retailer to Government. is Re.1.
3. There are three different types of VAT. They are:- ← Gross Product Variant ← Income Variant ← Consumption Variant
4. Under the Gross Product Variant taxes paid on purchases of raw materials and components alone is allowed as deduction. Taxes paid on capital goods is not allowed as deduction. This method is not in use, as it does not allow tax deduction of capital goods like plant & machinery on which the tax is large due to the price of the capital goods. This method is discouraged, as it does not take into account all the taxes paid by the buyer.
5. The income variant of VAT allows for deduction on purchases of raw materials & components as well as depreciation on capital goods. This method is also