ORIGIN

The origin of VAT can be traced back to 1918.

France was the first country to introduce VAT in 1954.

Since then 125 countries have adopted the system in
modified form.

 In India, the VAT was introduced 0n 1st April 2005 with

the following objectives:

 Urgent need for major reform in domestic sales taxes to

meet the challenges of globalization.
 To improve tax administration.
 To create congenial atmosphere for tax compliance and
concern for diminishing tax revenue.
FEATURES
Replaced the present system of Central Sales Tax .

Multipoint Tax System: VAT is a tax, which is

charged on the ‘increase in value’ of goods and
services at each stage of production and circulation.

No body is exempted for tax from the chain from the
supply chain.

Registered dealers are allowed a credit of rebate of

tax paid on purchase for use in the taxable activities.
VAT Calculation
Why Shift to VAT?
 Cascading
Tax Burden
Multiplicity of
Taxes
Phasing out of
Central Sales Tax
Advance system
of Inspection
Limitations
Though VAT allows the credit to be payed at
different stages, states following the sales tax
method follow the final- stage tax levy
practise leading to non-uniform pricing
systems of the businesses.
With the implementation of VAT,the
incentives schemes for several business units
has been kept aside by the state govt.
The dealer specific exemptions are not being
permitted in order to ascertain uniformity among
various sections.
Adversely effects the companies following a uniform
and centralized accounting system in an IT
environment.
No uniformity in rates.
It becomes chaotic to ascertain the VAT due to
varied tax rates on different commodities
No proper billing mechanism to maintain
proper records and bills for each and every
item purchased or sold in India.
The credit on the locally procured raw
materials would be availed against the CST
that is required to be paid when the goods
move from a VAT adopted state to a non- VAT
adopted state.
The tax paid on the purchases of materials
would not be get offset indicating that the
customers have to bear an additional burden
of tax when the goods move from a non-VAT
adopted state to a VAT adopted state.
Q1
What are the ways to
effectively implement VAT
Ways to effectively
implement VAT
Withering of CST is desirable
To avoid confusion
To reduce addn burden of tax
Billing should be regulated properly
Proper training for computing VAT correctly
Common units to measure and levy tax on interstate
transaction
Removal or integration of entry tax, toll tax,
entertainment tax and other local tax to some extent
Awareness amongst traders and dealers
Question2
Do you think
implementation of the
VAT system in India
would result in an
increase in price sof
goods.
Myth
Depends upon state to state
Uniformity
Cascading effect of the prices is reduced.
According to data collected from european
and non-european countries there would be
no effect in price
PARISON OF TAX SYSTEM BEFORE AND AFTER V

  INPUT INPUT TAX FINAL OUTPUT TOTAL TAX

( 4%) GOODS TAX
WORTH ( 10%)

PRE VAT Rs 100 Rs 4 Rs 200 Rs 20 Rs 24

SYSTEM

VAT Rs 100 Rs 4 Rs 200 Rs16 Rs 20

REGIME

        (Rs 20 - Rs  
4)
CONCLUSION
If Implemented properly, can bring huge revenues
Aims at overcoming bottlenecks of sales tax regime
Problematic for distributors, stockists or medium level traders
Small retail dealers are required to maintain more accounts
People consider VAT as inflationary
Whereas, intro of VAT would increase their disposable income
It will ultimately generate more money in the economy