Value Added Tax

VALUE ADDED TAX (VAT)

VAT Terminology

VAT – Value Added Tax –

This is the new system being implemented from April 1, 2003 in Karnataka

Unlike, Sales Tax, VAT is calculated based on Input & Output variation.

TYPES OF REGISTRATION

COMPULSORY REGISTRATION

VOLUNTARY REGISTRATION

SUO MOTU REGISTRATION

TEMPORARY REGISTRATION

VAT REGISTRATION

COMPLUSARY REGISTRATION

TURNOVER EXCEEDING 2 LAKHS

TRANSFER OF BUSINESS

CAUSAL DEALERS

OPTIONAL REGISTRATION

Other Dealers not covered above registration is optional.

VAT RATES

There are three main rates for Input and Output Vat tax.

0% for Agriculture products etc (Exempted Goods)

1% for Jewellery

4% for Pharmacy, Computers, Soaps etc.

12.5% for FMCG, Automobile

SCHEDULES TO VAT RATES

EXEMPTED GOODS

Agricultural implements manually operated

Cotton and silk yarn

Curd and Butter Milk

National Flag

Salt

Taxable at One Percent

Bullion and Specie

Jewellery

Precious and Semi-precious stones

Taxable at Four Percent

Agricultural implements not operated manually

All kinds of Bricks

Animal hair

Kerosene

Umbrella

Taxable at Twenty Percent

Narcotics

Molasses

SALES TAX

100 250 300

X Y Z

TAX = 100 * 10% TAX = 250 * 10% TAX=300*10%

= 10 = 25 =30

VAT TAXATION

100 250 300

X Y Z

TAX = 100 * 10% TAX = 150 * 10% TAX=50*10%

= 10 = 15 = 5

VAT Terminology – Input Tax

INPUT TAX

Input Tax is the Tax shown in our purchase bills.

As per the norms, every trader need to show VAT separately and it is considered as Input Tax.

Apart from Trade Purchases, Tax on Capital Goods purchases like A.C., Computers etc.. is also considered for this Input Tax.

INPUT VAT TAXATION

1000

X Y

INPUT TAX for Y is 1000*10%=100

VAT Terminology – Output Tax

OUTPUT TAX

Output Tax is the Tax charged on all the Taxable sales of a Vat Dealer.

For Ex. Tax shown as Output Tax and it becomes Input Tax for our customer.

OUTPUT VAT TAXATION

1000

X Y

OUTPUT TAX for X is 1000*10%=100

NET TAX

NET TAX = OUTPUT TAX – INPUT TAX

Tax payable if OUTPUT TAX is greater than INPUT TAX

Tax refund if INPUT TAX is greater than OUTPUT TAX ( VAT CREDIT).

NET TAX COMPUTATION

100 150 200

X Y Z

OUTPUT TAX FOR Y = 150 * 10% =15

INPUT TAX FOR Y = 100* 10 %=10

TAX PAYABLE = 15 – 10 = 5

NET TAX COMPUTATION

100 75 50

X Y Z

OUTPUT TAX FOR Y = 75 * 10% =7.5

INPUT TAX FOR Y = 100* 10 % = 10

INPUT CREDIT = 10 – 7.5 = 2.5

Input Tax Amount Calculation

Month Purchases Gross Value X Rate of Tax

For ex.:

Input Tax = 10,00,000 * 0.04 = 40,000/-

Purchases, includes Trade purchases and Capital Goods purchases as per the existing VAT Rate.

Output Tax Amount Calculation

Month Sales X Rate of Tax

Output Tax = 20,00,000 * 0.04 = 80,000/-

On the invoice, we should show, Items Amount, VAT Value and Total Value

In case of discounts, it should be given before VAT.

BOOKS TO BE MAINTAINED

Purchase Register

Sales Register

URD Register

Cash Register

Stock Register

Labour Register

Accounting for Works Contract

AUDIT COMPLIANCE

Every Dealer whose taxable turnover exceeds 25 lakhs must get his books audited by a practicing Chartered Accountant or by Sales Tax practioners.

Every company exceeding the above limit has to get their books audited by practicing Chartered Accountant only(normally Statutory Auditor)

DATE OF FILLING THE RETURNS

Monthly Sales and Purchases must be filled by every dealer before the 20 th of next month

Annual returns must be filled before May 31 st

Audit Report has to be filled before 31 st Dec

Revised tax returns must be filled before six months from the end of relevant tax period.

FORMS OF VAT

FORM NO.

VAT 1

VAT 2

VAT 7

VAT 10

VAT 100

VAT 115

VAT 240

PARTICULARS

Registration

Amendment of VAT

Registration Certificate

Cancellation of Regt

Monthly Returns

Annual Returns

Audit Report

KINDS OF ASSESSMENT

Self Assessment

Protective Assessment

Best Judgement Assessment

Reassessment

Authorities of VAT

COMMISSIONER

DEPUTY COMMISSIONER

ASSISTANT COMMISSIONER

STATE REPRESENTAIVE

COMMERCIAL TAX OFFICERS

GUIDANCE NOTE BY ICAI

Input tax paid on purchases of inputs (VAT Credit) should not be included in the cost of purchases

VAT credit which will be available in future on the goods lying in stock at inception of VAT scheme should be credited to the opening stock Account at the inception of the scheme itself.

Payment of VAT should not be treated as an expense in the financial statements of the enterprise.

Benefits of VAT

No Cascading Effect

Coverage

Revenue security

Selectivity

Co-ordination of VAT with direct taxation

COMPARITIVE STUDY OF VAT AND CST

Multiplicity of levies on different tax base

Simple to understand

No Cascading Effect

Lower Tax rates

Economic benefit to small industries

Multiplicity of levies on the same tax base

Complex structure

Cascading Effect

Higher tax rates

No economic benefit to small industries

VAT KST

VAT Revenue

VAT implementing states has shown an increase of 27.1 per cent during the first quarter of August 2006 fiscal year-on-year.

The tax revenue of the VAT implementing states showed around 13.8 per cent increase in 2005-06 over tax revenue of 2004-05, which is higher than the compound annual growth rate of sales tax revenues of these states for last five years.

VAT IN OTHER COUNTRIES

ARGENTINA

BRAZIL

NEPAL

CANNADA

VAT IN OTHER COUNTRIES

NAME OF COUNTRIES

Sweden

Poland

United Kingdom

Australia

Canada

China

VATE RATE IN %

25

20

17.5

8

6

17

In Brazil, in 1968, VAT revenue, as a percentage of total tax revenue was 51.03, while in 1985 it became 21.91, and in the period in between, it gradually fell. In comparison, income tax rose from 21.8 per cent in 1968 to 58.97 per cent in 1985.

MODEL VAT FOR INDIA