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  • 1. Outline for chapter # 21. What is tax? Tax is the most important source of public revenue. It is compulsory payment charge by government on individuals or companies to meet expenditure which is required for public welfare, Such as street lightning, city cleaning and more on. If tax is charge directly on personal or corporation income, then it is a direct tax. If tax is levied on the price of good or service , then it is in direct tax. Kinds OfTax:1. Tax on income2. Tax on payroll workforce3. Tax on property4. Tax on goods n services (VAT)5. Tariff6. Other taxes Welcome to the VAT regime he VAT regime will, in the long run, benefit everybody. The benefits for the government are quite clear. To begin with, it is not possible under the present sales tax system to bring in transparency about incidence of tax or the quantum of tax payable on commodity. VAT encourages voluntary compliance and thereby simplifies assessment procedures. Moreover, it eliminates disputes about tax liability of a transaction or rate of tax applicable, reducing compliance costs. VAT reduces the number of tax rates and tax concessions on different goods. It eliminates additional levies like resale tax, turnover tax, cess, additional tax and surcharge. VAT also seeks to prevent the problem of under-valuing and inflation, as all stages of production and distribution are subject to tax. It proposes to permit claims of credit for tax only on the receipt of an invoice. VAT is a more transparent and accurate system of taxation. The existing sales tax structure automatically triggers double taxation, thereby cascading the tax burden. For example, before a commodity is produced, inputs are first taxed, the produced commodity is then taxed and finally, at the time of sale, the entire commodity is taxed once again. By taxing the commodity multiple times, the cost of the goods increases; at the end it is the consumer who pays for it all. VAT is a multi-point sales tax, with a set-off for tax paid on purchases (inputs) and capital goods. What this means is that traders (any person who carries on the business of buying, selling, supplying or distributing goods directly or otherwise whether for cash, deferred payments, commission, remuneration or other valuable consideration) can actually deduct the amount of tax paid during purchase from the tax collected on sales, paying just the balance amount to the government. 1
  • 2. VAT is one of the most radical reforms that have been proposed for the Indian economy after years of political and economic debate. The reasons for advocating VAT is that it will replace a complicated tax structure that will help curb tax evasion apart from doing away with other fraudulent practices.2. What is VAT? A value added tax (VAT) is nothing but a general consumption tax that is assessed on the value added to goods & services. It is the indirect tax on the consumption of the goods, paid by its original producers upon the change in goods or upon the transfer of the goods to its ultimate consumers. It is based on the value of the goods, added by the transferor. It is the tax in relation to the difference of the value added by the transferor and not just a profit. All over the world, VAT is payable on the goods and services as they form a part of national GDP. More than130 countries worldwide have introduced VAT over the past 3 decades; Afghanistan being amongst the last few to introduce it. It means every seller of goods and service providers charges the tax after availing the input tax credit. It is the form of collecting sales tax under which tax is collected in each stage on the value added of the goods. In practice, the dealer charges the tax on the full price of the goods, sold to the consumer and at every end of the tax period reduces the tax collected on sale and tax charged to him by the dealers from whom he purchased the goods and deposits such amount of tax in government treasury. VAT is a multi-stage tax, levied only on value that is added at each stage in the cycle of production of goods and services with the provision of a set-off for the tax paid at earlier stages in the cycle/chain. The aim is to avoid cascading, which can have a snowballing effect on the prices. It is assumed that because of cross-checking in a multi-staged tax; tax evasion would be checked, hence resulting in higher revenues to the government.3. History Maurice Laure, Joint Director of the France Tax Authority, the Direction was first to introduce VAT on 10 April 1954. Initially directed at large businesses, it was extended over time to include all business sectors. In France, it is the most important source of state finance, accounting for nearly 50% of state revenues. Personal end-consumers of products and services cannot recover VAT on purchases, but businesses are able to recover VAT (input tax) on the products and services that they buy in order to produce further 2
  • 3. goods or services that will be sold to yet another business in the supply chain or directly to a finalconsumer.4. Sales Tax vs. Value Added Tax… Why should the end consumer pay all the tax?Under Sales Tax, it seems that the end consumer pays only that portion of the tax on the valueof the goods of his final purchases. In reality the consumer pays the entire taxburden, althoughas a hidden cost, as the seller considers tax paid by him as cost and computes his profit marginon this cost which is inclusive of tax paid by him at the time of purchase. VAT is a consumption tax; hence in this system the entire tax burden is reflected and is actuallypaid by the consumer as a transparent cost. Only now the Government gets paid a portion ofthe tax at every stage of the transaction, and the last dealer in the transaction chain chargesthe entire amount to the end consumer. Why Sales Tax is called a “hidden cost”?In the Sales Tax regime, sales tax is levied on the full value of the goods, at every stage of themanufacturing chain – from raw materials to finished goods. This means that salestax isleviedonbasic cost “+” values add/profit margin “+” sales tax paid earlier. Every incidence of salestax thus becomes a part of the cost of the product, leading to multi-point taxation & cascadingprices.As a consumer, one doesn’t know how much sales tax one has paid. The tax on the bill is notthe amount that goes in the government coffers. The government gets much more.E.g. a pencil manufacturer would have paid tax on each raw material used to produce it. The taxpaid goes to the government, and the manufacturer adds the taxes to his cost. He then addslabor processing charges and his profit that make up the sales price. He then charges tax on theentire amount. The consumer pays the tax. The government receives tax two times at least –once on the raw materials bought by the manufacturer and next again fully on the final pencil.This means the consumer has paid “tax on the tax” already paid – quite like compound interest.In the example given below, the consumer pays Afs.14.64 sales tax on the bill, but thegovernment receives Afs.26.64. the consumer doesn’t know it but he has actually paid thegovernment the whole of Afs.26.64.Tax outlay under Sales Tax: Seller Buyer Selling price Tax Rate Tax Amount Total A B (Mfr) 100 12% 12.00 112.00 (Raw material 3
  • 4. Supplier) B wants profit Consumer 122 12% 14.64 134.40 of Rs.10 sells to Total Tax 26.64 to the Govt.5. How VAT works VAT is a form of indirect sales tax paid on products and services at each stage of production or distribution, based on the value added at that stage and included in the cost to the ultimate customer. A tax levied on a product at each stage of manufacture or distribution in proportion to the estimated increase in its ultimate sales value. An indirect tax on consumption that is assessed on the increased value of goods at each discrete point in the chain of production and distribution, from the raw material stage to final consumption. The tax on processors or merchants is levied on the amount by which they increase the value of items they purchase and resell. Value Added Tax [VAT] is a modern & progressive form of sales tax. It is charged and collected by the dealers on the prices paid by the customer. VAT paid by the dealers on their purchases is usually available for set-off against the VAT collected on sales. Example: The following example shows how the VAT works through the chain from manufacturer to retailer. Company A buys iron ore and other consumables and manufactures stainless steel utensils; Partnership firm Bbuys the utensils in bulk from Company A and polishes them; Shopkeeper C buys some of the utensils and purchases packing, material from Vendor D, packages them and sells the packed utensils for the public. particulars Amount VAT@ (Afs) 4% (AFS) Company A Cost of iron are and consumables 50,000 2000 Sale of unpolished stainless steel utensils 150,000 Value added 1,00,000 Company A is liable to pay VAT ices issued on AFs 6,000 150,000/-@4% Less Set off (2000) Net Vat amount to pay with the return ( Note: Tax invoice 4,000 issued by company A will show sale price as Afs 150,000/- 4
  • 5. tax as Afs 6000/- therefore, the total invoice will be Afs 156,000/- Partnership B Purchased unpolished stainless steel utensils 150,000 Sales polished stainless steel utensils 180,000 Value added 30,000 Partnership B is liable o pay VAT on Afs 180000/-@ 4 % 7,200 But can claim set off tax paid on purchases (6,000) Net VAT amount to pay with the return 1200 Shopkeeper C Purchased polished stainless steel utensils 1,80,000 Packing material 5,000 Total purchases 1,85000 Sales 2,25,000 Value added 40,000 Shopkeeper C is liable to pay VAT on Afs 2,25,000/-@ 4% 9,000 Set off of tax paid on purchases (Afs 7200+ Afs 200 of 7,400 packing material) Net Vat amount to pay with return 1,600 Vendor D Tax paid costs Nill Sales 5000 Value added 5000 Vendor D is liable to pay VAT on Afs 5000/- @4% 200 The vat due on the value added through the chain i,e 4% 9,000 on AFS 2,25,000 is :The government received the tax in stages. The payments of tax were as follows: particulars Amount (AFS) Suppliers of company A 2,000 Company A 4,000 Partnership B 1,200 Shopkeeper C 1,600 Vendor D 200 Total 9000Thus, through a chain of tax on sale price and set off on purchase price, the cascading impact of tax istotally eliminated. 5
  • 6. What is the meaning of ‘cascading effect’ of tax?Generally, any tax is related to selling price of product. In modern production technology, rawmaterial passes through various stages and processes till it reaches the ultimate stage e.g., steelingots are made in a steel mill. These are rolled into plates by a re-rolling unit, while thirdmanufacturer makes furniture from these plates. Thus, output of the first manufacturerbecomes input for second manufacturer, who carries out further processing and supply it tothird manufacturer. This process continues till a final product emerges. This product then goesto distributor/wholesaler, who sells it to retailer and then it reaches the ultimate consumer. If atax is based on selling price of a product, the tax burden goes on increasing as raw material andfinal product passes from one stage to other.For example, let us assume that tax on a product is 10% of selling price. Manufacturer ‘A’supplies his output to ‘B’ at Rs. 100. Thus, ‘B’ gets the material at Rs. 110, inclusive of tax @10%. He carries out further processing and sells his output to ‘C’ at Rs. 150. While calculating hiscost, ‘B’ has considered his purchase cost of materials as Rs. 110 and added Rs. 40 as hisconversion charges. While selling product to C, B will charge tax again @ 10%. Thus C will getthe item at Rs. 165 (150+10% tax). In fact, ‘value added’ by B is only Rs. 40 (150–110), tax onwhich would have been only Rs. 4, while the tax paid was Rs. 15. As stages of production and/orsales continue, each subsequent purchaser has to pay tax again and again on the materialwhich has already suffered tax. Tax is also paid on tax. This is called cascading effect. Disadvantages of “Cascading effect” of taxes:A tax purely based on selling price of a product has cascading effect, which has the followingdisadvantages:COMPUTATION OF EXACT TAX CONTENT DIFFICULT - It becomes very difficult to know the real tax content in the price of a product, as a product passes through various stages and tax is levied at each stage. This is particularly important for granting Export incentives or for fixing regulatory prices.VARYING TAX BURDEN - Tax burden on any commodity will vary widely depending on the number of stages through which it passes in the chain from first producer to the ultimate consumer.DISCOURAGES ANCILLARISATION - Ancillarisation means getting most of the parts/components manufactured from outside and making final assembly. It is common for large manufacturers (like automobile, machinery etc.) to get the parts manufactured from outside and make final assembly in his plant. If a component is purchased from outside, tax is payable. However, if the same component is manufactured inside the factory, no tax would be payable. Thus, manufacturers are tempted to manufacture parts themselves instead of developing ancillary units for supply of the same. This is against the national policy, because it discourages growth of Small Scale Industry and increases concentration of economic power. 6
  • 7. INCREASES COST OF PRODUCTION - If a manufacturer decides to reduce ancillarisation, it increases cost of production and waste of scarce national resources, as the large manufacturer may not be in a position to fully utilize the production capacity of the machinery.CONCESSIONS ON BASIS OF END USE ARE NOT POSSIBLE - Same article may be used for various purposes e.g. Copper may be used for utensils, electric cables or air conditioners. Government would naturally like to vary tax burden depending on use. However, this is not possible as when Copper is cleared from factory, its final use cannot be known.EXPORTS CANNOT BE MADE TAX FREE – Though final products which are exported are exempt from tax, there is no mechanism to grant rebate of tax paid at the earlier stages on the inputs. - - It may be noted that as per WTO (World Trade Organization) stipulations, exports can be made free of domestic taxes, but export incentives as such cannot be given. How VAT avoids cascading effect of tax?System of VAT works on tax credit method. In Tax Credit Method of VAT, the tax is levied on fullsale price, but credit is given of tax paid on purchases. Thus, effectively, tax is levied only on‘Value Added’. Most of the countries have adopted tax credit method for implementation ofVAT.The aforesaid illustration will work out as follows under VAT system.‘B’ will purchase goods from ‘A’ @ Rs. 110, which is inclusive of duty of Rs. 10. Since ‘B’ is goingto get credit of duty of Rs. 10, he will not consider this amount for his costing. He will chargeconversion charges of Rs. 40.00 and sell his goods at Rs. 140. He will charge 10% tax and raiseinvoice of Rs. 154.00 to ‘C’. (140 + tax @ 10%). In the Invoice prepared by ‘B’, the duty shownwill be Rs. 14. However, ‘B’ will get credit of Rs. 10 paid on the raw material purchased by himfrom ‘A’. Thus, effective duty paid by ‘B’ will be only Rs. 4. ‘C’ will get the goods at Rs. 154 andnot at Rs. 165 which he would have got in absence of VAT. Thus, in effect, ‘B’ has to pay dutyonly on value added by him.Illustration of tax credit method to avoid cascading effect – Following example will illustrate thetax credit method of VAT. Transaction without VAT Transaction With VATDetails A B A BPurchases - 110 - 100Value Added 100 40 100 40Sub – Total 100 150 100 140Add Tax 10% 10 15 10 14Total 110 165 110 154 7
  • 8. Note - B is purchasing goods from A. In second case, his purchase price is Rs 100/- as he isentitled to VAT credit of Rs 10/- i.e. tax paid on purchases. His invoice shows tax paid as Rs 14.However, since he has got credit of Rs 10/-, effectively is paying only Rs 4/- as tax, which is 10%of Rs 40/-, i.e. 10% of ’value added by him. What is the meaning of ‘Value added’?In the above illustration, the ‘value’ of inputs is Rs 110, while ‘value’ of output is Rs 150. Thus,the manufacturer has made ‘value addition’ of Rs 40 to the product. Simply put, ‘value added’ isthe difference between selling price and the purchase price.In the aforesaid example, the tax revenue which was earlier Rs 25 came down to Rs 14. As thenumber of stages increase, the revenue will further reduce. How this will be beneficial toGovernment?It is obvious that tax revenue will go down in VAT system, if same rate of tax is maintained.Hence, VAT rate will have to be suitably increased to ensure that tax revenue does not reduce.This rate is termed as ‘Revenue Neutral rate’ (RNR). It is the VAT rate at which tax revenueremains same despite giving credit of duty paid on inputs.RNR should be lower than present sales tax rate – Presently, sales tax is levied by most StateGovernments at the first stage i.e. wholesale stage and no tax is levied at subsequent stage.However, in VAT system, tax will be collected at consumption stage, i.e. last stage. Thus, iftoday, sales tax rate is 15% on wholesale price of Rs 100, under VAT system, tax will becollected at consumption stage i.e. on retail price of (say) Rs 125. Thus, RNR will be lower thanpresent sales tax rate of State Governments. It has been decided to levy sales tax at RNR of12.5% for most of commodities. Why VAT is called a “transparent tax”?In the VAT system, though tax is levied at every stage – from manufacturer to the endconsumer – it is levied only on the basic cost “+” value add/margin and not on the VATcomponent, at every stage. Hence, VAT eventually helps lower prices and the completetransparency of the system will ensure that at any point in the transaction chain, one will beable to determine how much VAT has been paid for the goods.On the other hand, VAT solves the problem for both the Government & the consumer. Eachtrader is allowed to reduce the tax paid on their purchases from the tax collected on their sales& to pay only the balance to the Government. This means that the purchase & sales have to becorrectly recorded. In the e.g. below, it is evident that the Government receives a total of Rs.13.75, which is on theinvoice raised by the manufacturer.Tax outlay under VAT: Seller Buyer Selling VAT Invoice Tax Tax Net Tax Price Rate Value Payable Credit Received (Excluding (including by Govt. 8
  • 9. Tax) Tax) A (Raw B (Mfr) 100 12.50% 112.50 12.50 0 12.50MaterialSupplier)B wants Consumer 110* 12.50% 123.75 13.75 12.50** 1.25profit of Rs.10 sells to Total 13.75 Tax collected“*” The selling price is reduced but the margin is the same as before, which is Rs.10.“**” The tax paid by B to A is reduced and B will pay the Government only Rs.1.25. A hasalready collected Rs.12.50 which he will pay the Government.In the VAT system, it may seem that the four tax rates are higher (0%, 1%, 4% and 12.5% acrossall states) as against sales tax, which offers a range (4% to 17% depending upon the state).Also, since there is total transparency of VAT paid & received at each stage of the transaction, itmay seem that the tax outlay across the transaction has increased. But in effect (refer thetables), the total tax outlay reduces in the VAT system due to input credit. While theGovernment is being paid Rs.26.64 as tax in the Sales Tax regime, for a similar transactionunder VAT, the Government will get only Rs.13.75 as tax!Here is a diagram to illustrate the process.Note: The diagram is only illustrative&not exhaustive. The figures in the diagram are not the same as those of the above illustrationCase-1Tax @ 5%Tax @ 10% Trader ManufaInputs cost price 150Finished Goods: - cturer VAT charge 7.5Sale price - 200Vat charged – 20 Government Set off allowed- 7.5 Collects Af. 7. 5 Afs.12.5 Total incidence oncustomer - Afs. 20 9
  • 10. Case-2 Tax @ 10% Trader ManufaTax @ 10% Inputs cost price 150 - cturer Finished Goods: VAT charge 15 Sale price - 200 Vat charged – 20 Government Set off allowed- 15 Collects Af.15 Afs.5 Total incidence on customer - Afs. 20--- VAT will herald-in uniform tax rates across the country, simplify procedures, help lowerprices by eliminating the cascading effects of taxation, and reduce total tax outlay and improvecash flows. It will also increase transparency in the way we do business.Transparency is the availability of all the information with complete confidence that nothing ishidden. In taxation the government seeks transparency of trade while at the same time, theconsumer wants to know whether they are taxed correctly and they pay as taxes are reallyreceived & accounted for by the Government. Consumption Type of VAT:InConsumption Type VAT, ‘Value Added’ is considered by deducting all purchases, rawmaterials and capital items. Consumption type VAT is popular and it is adopted by most of thecountries for following reasons: (a) Administration control is easy due to ‘credit method’ that can be adopted. (b) It makes no distinction between capital intensive and labor intensive activities. (c) Tax avoidance by classifying capital goods purchases as revenue purchases is avoided. (d) It is in harmony with the destination principle. (e) It simplifies tax administration as there is no need to distinguish between purchase of capital goods and consumption goods. 1. Importers: These are the traders importing goods from outside Afghanistan also includes the traders dealing within the country buying goods from states other than the state where they conduct their business or process of production. 10
  • 11. 2. Manufacturers: These are the businessmen who are involved in production processes for making certain goods. 3. Distributors: They are the people who obtain goods from the manufacturers & act as link which forwards the goods towards the wholesalers, dealers or retailers; in the process making some profit. 4. Wholesalers: They obtain goods from the distributors & forwarding the same to the retailers for a profit. 5. Retailers: They are the shopkeepers who obtain the goods from the wholesalers & make it available to the end consumers at a price. 6. Works Contractors: These people undertake work on contract basis perform the necessary activities meet the obligations complete the contract & get paid for the same their work is more of a temporary nature. Understanding VATThe essence of VAT is in providing set-off for the tax paid earlier, and this is given effectsthrough the concept of input tax credit/rebate. This input tax credit in relation to any periodmeans setting off the amount of input tax by a registered dealer against the amount of hisoutput tax. The Value Added Tax (VAT) is based on the value addition to the goods, and therelated VAT liability of the dealer is calculated by deducting input tax credit from the taxcollected on sales during the payment period.This input tax credit will be given for both manufacturers and traders for purchase ofinputs/supplies meant for both sales within the state as well as to other states, irrespective ofwhen these will be utilized/sold. This also reduces immediate tax liability. Even for stocktransfer/consignment sale of goods out of the state, input tax paid in excess of 4 per cent willbe eligible for tax credit. If the tax credit exceeds the tax payable on sales in a month, theexcess credit will be carried over to the end of next financial year. If there is any excessunadjusted input tax credit at the end of second year, then the same will be eligible for refund.Input tax credit on capital goods will also be available for traders and manufacturers.The highlights are as follows - 11
  • 12. Tax Credit - Manufacturer will be entitled to credit of tax paid on inputs used by him in manufacture. A trader (dealer) will be entitled to get credit of tax on goods which he has purchased for re-saleInput Tax Credit- Credit will be available of tax paid on inputs purchased within the State. Credit will not be available of certain goods purchased like petroleum products, liquor, petrol, diesel, motor spirit (position of furnace oil is not clear]. No credit is available in case of inter-state purchases.Credit of tax paid on capital goods - Credit will be available of tax paid on capital goods purchased within the State. Credit will be available only in respect of capital goods used in manufacture or processing. The credit will be spread over three financial years and not in first year itself. There will be a negative list of capitalInstant credit – Credit will be available as soon as inputs are purchased. It is not necessary to wait till these are utilized or sold How is VAT charged?All registered dealers, regardless of where they are in the chain of manufacture & productionmust charge VAT on their sales of taxable goods & collect it from their customers. Registereddealers must issue a tax invoice to other registered dealers showing the VAT amount beingcharged as a separate amount. Registered dealers who pay VAT on their purchases cannormally claim a “set-off” for the VAT paid to their suppliers. As a result VAT is not a cost to thedealers. Dealers must ensure that tax is charged separately in their invoice in order to beeligible to claim a set-off. Certain dealers who mainly sell to consumers at retail level can optfor a simplified system of VAT calculation & payment under a Composition Scheme. Under theComposition Scheme, dealers will not issue a tax invoice or show VAT as a separate amount onthe bill or cash memorandum. Computation of VAT:VAT can be computed by using any one of the following methods:The subtraction method: The tax rate is applied to the difference between the value of outputand the cost of input.The addition method: The taxable value is computed by adding all elements of value addition(wages, salaries, profit, overheads, interest payments, and so on).Invoice credit method: Here, deduction of VAT paid on purchase is allowed against the VATpayable on sale. 12
  • 13. The invoice credit method (the variant of which is practiced in most countries) may be definedas: VAT= t (O)-t (I)Where; “t”= tax rate; ‘O’= value of output; And ‘I’= value of the inputs.The net value-added tax can be the difference between the tax payable on output sales and thetax paid on inputs.Registration for VAT… Who should register for VAT?A dealer, whose turnover exceeds the threshold, must register with the Sales Tax Department.However, there are provisions for dealers to register voluntarily. If the dealer is registeredunder the Central Sales Tax Act, he must register for VAT, regardless of the threshold.The threshold is based on the total turnover of sales and the level of taxable sales or purchasesin the year commencing 1st April. The threshold limit, above which one must register, dependson the nature of the business. An importer whose total turnover exceeds Afs. 1, 00,000/- andhis taxable sales or purchases exceed Afs. 10,000/- in a year commencing 1st April, he mustregister and account for tax. “Importer” for this purpose means any dealer who brings anygoods into the state or to whom goods are dispatched from any place outside the state. If thedealer is not an Importer and his total turnover exceeds Afs. 5, 00,000/- , also his taxable salesor purchases exceed AFs. 10,000/- then he must register & account for the tax.If a dealer is operating in more than one place in the same State, the threshold limit applies toall such places taken together. And he must make a single application for registration.Benefits of registration is that – while calculating the amount of VAT payable, a registereddealer can claim a set-off on the VAT already paid by him on his business purchases. He canissue tax invoices to the customers. This will enable him to claim a set-off for the VAT paid bythe customer to this dealer. Effects of remaining an Unregistered dealer:The effect of remaining an Unregistered dealer is that the dealer is treated much like aconsumer. They have to pay VAT on their purchases from a Registered Dealer; there is no wayfor the tax to be collected from the consumer. As the Unregistered Dealer cannot charge VATon his invoices to his customer. Consequently, while his customers cannot claim input credit thedealer has to raise the prices to compensate for the VAT paid. The Unregistered Dealer is henceassumed to be very small who sells directly to the consumers. 13
  • 14. Transaction of an Unregistered Dealer to a consumer:Purchase:Basic Cost AFs. 1000.00VAT @ 12.5% AFs. 125.00Total purchase value (effectively, Cost of materials) AFs. 1125.00Sales:Profit Margin (for example) AFs. 150.00Sale Invoice (to a consumer)* (effectively, inclusive of VAT) AFs. 1275.00* It should be noted that Unregistered Dealers are NOT expected to sell to non-consumers (i.e.industry or other dealers) since the recipient does not get any VAT credit.From the revenue viewpoint, the goal would have been to collect 12.5% on AFs. 1000.00 (BasicCost) + AFs.150.00 (‘Value addition by dealer’) which is AFs.143.75, instead of AFs. 125.00(which it actually gets).On an average turnover of, say AFs. 3 lakhs for a Small Dealer, with an average margin of, say15%, the Government stands to ‘lose’ AFs. 5625.00 per dealer per annum. This level has beenconsidered acceptable by the committee, and is being stated here only to put things intoperspective. How to apply for registration?A dealer must apply for the Registration Certificate by using form. This form can be obtainedfrom the local Sales Tax Office. It is to be duly completed & submitted at the Sales Tax Officealong with the other documents such as, proof of place of business – (electricity bill, telephonebill), proof of transactions already undertaken, his income tax permanent account number(PAN), proof of his identity (Ration card, Voter’s ID card, Passport), two passport-sizephotographs, details of his bank account.The above procedure is applicable to both – Regular & the Composition Scheme under VAT. Ifhe is already a registered dealer & opts to join the Composition scheme then he can do it byfilling up form at the Sales Tax Office.Self-assessment a Responsibility… Self-assessment in VAT:The very concept of self-assessment is that each dealer clearly records every transaction –every purchase invoice & sale invoice – and pays & collects tax accordingly and since everyaspect is transparent, the tax authorities need not get into detailed assessment. Since there is aclear “transaction trail”, it is crucial that all transactions are recorded – carefully and on time –and the books of are maintained as per the prescribed State laws. 14
  • 15. The basic simplification in VAT is that VAT liability will be self-assessed by the dealersthemselves in terms of submission of returns upon setting-off the tax credit. There will nolonger be compulsory assessment at the end of each year as exists now. If no specific notice isissued proposing departmental audit of the books of accounts of the dealer, within the timelimit specified in the Act, the dealer will be deemed to have been self-assessed on the basis ofreturns submitted by him. The way a dealer maintains his books of accounts:The greatest advantage VAT offers is the facility of claiming input credit on all VAT (input tax)paid, at the time of purchase, against all VAT (output tax) collected at the time of sale. In orderto claim the input credit, the dealer will have to maintain his books of accounts as prescribedunder the State VAT laws.In the Sales Tax regime all he needs to do is to maintain up-to-date sales registers and salesinvoices, while purchase registers are not critical for payment of sales tax. However, under VAThe will have to maintain up-to-date purchase registers and sales registers, in order to calculatehis input credit.  Purchase Register under VAT: In order to compute the VAT set-off accurately, the dealer needs to maintain a purchase register giving details of each purchase invoice during the specified period showing Purchases separately from Unregistered dealers & Registered dealers. Information on each of the following should be clearly shown: Gross invoice value – value of goods including VAT. Purchase value – net of VAT. The VAT amount where VAT was paid.The Purchase Register should be able to depict: Goods used forconsumptionfor which dealer cannot claim input credit (consumables such as waste cloth, spare parts, petroleum products etc.) Imports and purchases from other states. Separate accounts on value of goods purchased at different VAT rates. Additionally all the original invoices received are needed to be maintained for claiming input credit.  Sales Register under VAT: The sales need to be recorded in a sales register giving details of each sales invoice. Information on each of the following should be clearly shown: Gross invoice value – value of goods including VAT. Sale value – net of VAT. The VAT amount where VAT was collected. 15
  • 16. The sales register should be able to depict: Exports & sales made to other states. Separate accounts for value of goods sold at different VAT rates. Additionally, the dealer will need to retain a copy of all the invoices issued to claim input credit. VAT documents needed to be maintained: 1. Tax Invoice: A VAT compliant invoice, called Tax Invoice, will need to be serially numbered and will have the following details:  Product – if exempt or vat able.  Tax Identification Number (TIN) – registration details along with seller’s name & address.  Tax point – date of sale.  Full Item List – with VAT break-up including VAT totals. 2. Credit and Debit Notes: Similar to the tax invoice, Credit notes & Debit notes need to be serially numbered, display the TIN number and the contact details of the person raising the document, Tax Point and full details of the adjustment. Credit & Debit notes are documents for acknowledging adjustments to sales & purchases and will have an impact on input credit. Hence, they typically contain details of goods returned, price adjustments & damaged goods. Records necessary to be maintained: 1. Stock Records: Complete records of purchases and sales will have to be maintained for each stock item. 2. Manufacturing Accounts: Complete records of raw materials and inputs purchased along with goods manufactured. 3. VAT Accounts: As per State specified formats, the VAT accounts will have to be maintained. The VAT Account is a summary of all input tax paid on purchases & all output tax collected at the time of sale, to compute the Net VAT Payable or Input Credit carried forward.Returns & Set-off… Filing for Returns: 16
  • 17. A registered dealer must file a VAT return. If the return indicates that the tax is due then hemust also pay the tax. This is part of his self-assessment return.The details of his name, address, Registration Certificate number, period of return, EntitlementCertificate, where applicable, must be fully filled in. The amounts filled in must be arithmeticallycorrect. Needless to say the return must reflect correct tax liability.The dealer should file:A Monthly Return if the total net tax liability in the previous year was more than Rs. 1 lakh.Quarterly Return if the total nettax liabilityexceeded Rs. 12000 but was Rs. 1 lakh orless. Itshould be filed for the periods to 30th June, 30th September, 31st December and 31st March.Six-monthly Return if the total net tax liability in the previous year was Rs. 12000 orless, thereturns should be for the periods of 1st April to 30th September and 1st October to 30th March.Since these are continuous reports, the Carry Forward Credit of the current report has to matchthat of the previous report. Furthermore, once the Returns are filed, changes cannot be madein the subsequent month/s without submitting detailed documentation. A Statutory Return,depending upon each State, could have as many as 30 fields on the form.Dealers who are retailers& who opt for a composition scheme must file six-monthlyreturns.Other composition dealers must follow the rules for filing of return set out above.The deadlines for filing the returns for January ison or before the 20th of February and forreturn of February is on or before the 20th of March. All the other returns should be filed bythe 25th day of the following month.Under this scheme annual returns are no longer required.Also if there was nobusiness activity in the period (e.g. seasonal business) the dealer is stillrequired to file a ‘nil return’.If the dealer has several different places of business in Maharashtra he can file a consolidatedreturn but only with the prior approval of the Commissioner of Sales Tax. Claiming set-off:Set-off is the amount of tax credit which can be claimed in the VAT return. Any dealer who hasnot opted to pay tax by way of composition as a retailer, owner of a restaurant/ hotel or abakery owner. This set-off is available under the composition scheme only in the case of workscontract and dealers in second hand motor vehicles where special provisions apply.The dealers can claim a set-off for taxes paid under: Country Value Added Act, VAT. .The dealer can claim a set-off for the full amount of tax paid for purchases for his business. Thisincludes capital assets goods the purchases of which are debited to the profit and loss account,trading goods, raw materials, parts, components and spares, packing materials & fuels.However, there are conditions related to the set-off he can claim.They are: 17
  • 18. He must be registered for VAT. He must not be paying tax by way of composition as a retailer, hotel/ restaurant business or bakery. He must hold a valid tax invoice of the goods purchased for which he is claiming a set-off in which the VAT must be shown separately. He must maintain an account of all the purchases in chronological order on which he is claiming a set-off.6. Who gains? State and Central governments gain in terms of revenue. VAT has in-built incentives for tax compliance— only by collecting taxes and remitting them to the government can aseller claim the offset that is due to him on his purchases. Everyone has an incentive tobuy only from registered dealers — purchases from others will not provide the benefit of credit for the taxes paid at the time of purchase. This transparency and in-built incentivefor compliance would increase revenues. Industry and trade gain from transparency andreduced need to interact with the tax personnel. For those who have been complyingwith taxes, VAT would be a boon that reduces the cost of the product to the consumer and boosts competitiveness. VAT would be major blow for tax evaders, bothmanufacturers who evade excise duty payments and traders who evade sales-tax WHAT’LL BE THE TAX BURDEN? The overall tax burden will be rationalized as it’ll be shared by all dealers, and prices, in general, will fall. Moreover, VAT will replace the existing system of inspection by a system of built-in self-assessment by traders and manufacturers. The tax structure will become simple and more transparent and tax compliance will improve significantly. It will also be simpler and offer easy computation and easy compliance. VAT will prevent cascading effect through input rebate and help avoid distortions in trade and economy by ensuring uniform tax rates.7. Afghanistan ( income tax ) In the early 1980s, direct taxes accounted for about 15% of government revenues. The share provided by indirect taxes declined from 42% to 30%, as revenues from naturalgas and state enterprises played an increasing role in government finance. Tax collection, never an effective source of revenue in rural areas, was essentially disabled by the disruption caused by fighting and mass flight. Under the Taliban, arbitrary taxes, including those on humanitarian goods, were imposed. In 2005 the government introduced an income (or wage) tax. Employers with two or more employees were required to pay 10% on annual income over about $3,500 and 20% on income over about $27,000.The wage tax is being imposed on all businesses with two or more 18
  • 19. employees... The new tax will be set at a rate of 10 per cent on income over 12,500 Afs, (US$292) a month. Income over 100,000 Afs, a month will be taxed 20 per cent...Business people who do pay tax say the tax base is far too narrow and they are alreadyburdened by a list of taxes including a 20 per cent corporate tax and a 12.5 per cent tax ongross receipts.In 2006, FAD tax policy mission made a number of recommendations for reform of income tax.From Afs. 0 to 5,000 0%From Afs. 5,001 to 12,000 2%From Afs.12,001 to 100,000 10% + 150-/ Afs.fix amountFrom 100,000 above 20% + 8500 -/Afs fix amountIn 2009, parliament approves a number of improvements to the income tax along the lines ofpervious fund recommendations. As result, the BRT has moved closer to a broad baseconsumption tax. Importantly, exports are not taxed and 2 % BRT is being collected at theborder and can be credit it against future BRTliabilities. This measure explains a third of theincrease in tax revenue in 2009/10 and 1% GDP in tax revenues.Currently Afghan tax collections only account for 30 percent of government revenue. The rest isforeign aid.Why change in tax system?Afghanistan has one of the lowest domestic revenue collections in the world. Total tax revenuewas only 8.9 % of GDP in 2009/10, of which customs duties were 3.1 percent of GDP, corporateand personal income tax 2.2 percent of GDP and BRT1.7 percent of GDP. Afghanistan needsadditional tax revenues to achieve fiscal sustainability. Grant financing of recurrent spendingalone as around 5 percent of GDP in 2009/10 and the need for additional tax revenue hasincreased with the recent Kabul Bank crisis.It is unlikely that this additional revenue can be raised the short-run through strengthening taxadministration alone or from the income tax without significantly reducing the attractiveness ofAfghanistan for potential foreign investment. Simply increasing the business receipts tax (BRT)rate, with its tax cascading (tax-on-tax) is also not an attractive option. The mission thereforeconcludes that the next tax reform step that Afghanistan should take would be too replace theBRT with a simple, best practice VAT, with a low rate and high threshold for VAT registration tolimit the number of VAT taxpayer the Afghanistan Revenue Department(ARD) must control. Toraise additional revenue, Afghanistan should also adopt excise taxes on beverages, tobaccoproducts, petroleum products, and vehicles. 19
  • 20. So, Finance Minister MR. Omar Zakhailwal specifically requested from his economist team andother responsible personalities that the feasibility and timing of a VAT for Afghanistan.From MOF research data I found that there is strong case for Afghanistan adopting a low-rateVAT with a high threshold (now it is 200 million AFs) for registration. First Afghanistan needsadditional tax revenue, possibly equal to 5 percent of GDP, and it’s unlikely that this additionalrevenue can be raised in the short-run through strengthening tax administration or from theincome tax without significantly reducing the attractiveness of Afghanistan for potential foreigninvestment. Second, the current BRT, which raises almost as much revenue as the corporate income tax,can be viewed as a defective VAT. Since 2009, the BRT applies to import and exempts exportsand is thus levied on the destination basis, as is the common international practice for vats.There is another BRT feature that is similar to VAT: the BRT applied to imports is creditableagainst the BRT the importer must pay on its gross receipts. However, there is no credit at thenext stage of production or distribution for BRT paid on intermediate sales of goods andservices (for example, a sale from a manufacturer or an importer to a wholesaler or from awholesaler to aretailer).This leads to tax cascading (tax on tax), which may be acceptable when the BRT has a low 2percent rate on most intermediate sales. Tax cascading would become more significant if theBRT rate is increased to raise additional tax revenue. This suggests that the next reform stepshould be to replace the BRT with a simple, best-practice VAT which will generate almost equalto 2.5% of GDP, taking into account the practical constrains of Afghanistan’s tax administration.Importance of value added tax on Afghanistan;If a well-administered system comes in, it willnot only close options for traders and businessmen to evade paying their taxes, but also makesure that theyll be compelled to keep proper records of sales and purchases.Under the VAT system, no exemptions are given and a tax will be levied at every stage ofmanufacture of a product. At every stage of value-addition, the tax that is levied on the inputscan be claimed back from tax authorities.8. A VAT For Afghanistan Situation Afghanistan is re-building its tax and customs administrations in a difficult environment for revenue mobilization; significant progress has been made.Afghanistan is re-building its tax and customs administration in a difficult environment for revenue mobilization; significant progress has been made. Large taxpayer offices have been expanded and a medium taxpayer office has been established. 20
  • 21. Preparations for automating the ARD are proceeding. However, all the conditions for a successful introduction of a VAT are not present at this time. This is particularly the case for those conditions relating to services to tax payers, collection enforcement, filing compliance, access to independent review of decisions, and audit. Custom should be able to collect VAT under its normal customer procedures as it collects BRT today, and initially most of the VAT revenue will be collected by customs. Threshold A VAT for Afghanistan should include a very high threshold for compulsory registration to restrict the number of tax payers to a manageable group, possibly 400 t0 500 taxpayers, within the major provinces. Initially, domestic VAT taxpayers should all be in the LTOs. Once ARD has gained experience with collecting the VAT, the threshold for VAT registration can be lowered, possibly in stages, to bring additional domestic taxpayers in to the VAT net. Business receipt tax medium size business When VAT is introduced, the BRT should be replead, except possibly for taxpayers not registered for VAT that have business receipt above the threshold for BRT(currently Afs 3 million or US $ sixty and thousands). The case for retaining BRT for medium size taxpayers is that the large taxpayers required registering and charge VAT will argue the smaller taxpayers should also be subjected to VAT or at least something that brings them into the tax net. If the VAT rate is set at 10 percent,A3 percent BRT would treat medium size taxpayers equitably if, on average, their gross margin is about 30 percent. Retaining BRT for medium sized taxpayers would not likely be major revenue producer. Threshold and Revenue potentialRevenue raised by the VAT will depend on several design features such as the tax rate,threshold level, and extent of leakages from increased evasion or weak tax enforcement. Thissection uses actual LOT and customs data (valuation and duties) for 2009/10 to estimate thatwould have been the revenue yield of a VAT in 2009/10. Consistent with recommendations,several factors have been considered when estimating the revenue potential only a smallnumber of firms would be registered as VAT, VAT taxpayers can credit VAT paid at the borderagainst subsequent VAT liabilities; and the cascading effect of BRT.The introduction of VAT with a high threshold and 10 percent unique rate would profit almost 3percent of DP in extra revenue over what is currently collected by the BRT. That 10 percent of 21
  • 22. VAT will be used for education, medical services and financial services. The introduction of VATis assumed to erode the base by 20 percent relative to the actual estimated based from2009/10 data. Alf of the imported capital goods, the import component of production for thesefirms is, on average, 30 percent. Finally around 40 percent of BRT payments at te LOT areassumed to be due to cascading of the BRT.Table .1 (Net VAT revenue)With productivity level comparable to other countriessimilar to Afghanistan, VAT revenuewould amount around five percent of GDP with a net increase in revenue around 3 percent ofGDP (table .2 and 3). RegressiveOne concern that governments in many countries have had when the VAT is introduced is thatit is a regressive tax with respect to income, given that consumption is a higher share ofdisposable income for lower income households than for higher income households. A VATwith a high threshold, however, for registration is likely to broadly proportional to income ifnot progressive. Imports, which are subjected o VAT, are almost certainly a higher share ofconsumption of higher income households than lower income households. In particular; 70percent of the consumption of households in the lowest quintile is on non-taxable subsistenceagricultural products where this represents fifty percent of consumption of the top quintile.The large informal economy together with the recommendations, that a higher VAT thresholdbe established for registration, which will initially cover 250 to 400 firms; Makes unlikely thatthe introduction of the VAT will directly affect the two lowest income quintiles.Formality concentrates disproportionally in higher income quintiles and could result in aconsumptions base tax being overall progressive. Furthermore,where the two lowest quintilesrepresent of 26 percent of total household consumption, the two top quintiles represent 56(table.4)Many of the goods that be subjected to VAT and consumed bye two lower quinlites represent avery small proportion of their total consumption. These would include phone and internetservices(1 percent of their total consumptuon), electricity (1.7 percent), airtransport (zero prc),and consumer durables (2.five prc). Note that these goods represents a much ghier proportion ofthe quintiles consumptions. Preparatory task for VAT implementation 22
  • 23. The implementation of VAT in Afghanistan will be a demanding project to be managed within the ministry of finance and it should be thoroughly planned and organized. A detailed should be developed and a fulltime VAT development unit should be established to oversee both policy( drafting of the law, regulations, VAT guide publicity and taxpayers information) and operating system and procedures( registration, tax return form, payment audit and computer system). International experience suggests that the timetable for VAT implementation should be at least 18 to 24 months and, if the vat lunch is going to be successfully, the VAT law should be enacted at least one year before the tax goes into effect. If the ministry of finance wants to explore future the adoption of a VAT, it may want to see additional technical assistance to develop a vat implementation plan.9. vat effect on economic growth Supply Demand Analysis of Tax Market In the above example, we assumed that the same number of widgets were made and sold both before and after the introduction of the tax. This is not true in real life. The fundamentals of supply and demand suggest that any tax raises the cost of transaction for someone, whether it is the seller or purchaser. In raising the cost, either the demand curve shifts leftward, or the supply curve shifts leftwards. The two are functionally equivalent. Consequently, the quantity of a good purchased, and/or the price for which it is sold, decrease. This shift in supply and demand is not incorporated into the above example, for simplicity and because these effects are different for every type of good. The above example assumes the tax is non-distortionary. A VAT, like as any other tax, distorts what would have happened without it. Because the price for someone rises, the quantity of goods traded decreases. Correspondingly, some 23
  • 24. people are worse off by more than the government is made better off by tax income . Thatis, more is lost due to supply and demand shifts than is gained in tax. This is known as adeadweight loss. The income lost by the economy is greater than the governments income;the tax is inefficient. The entire amount of the governments income (the tax revenue) maynot be a deadweight drag, if the tax revenue is used for productive spending or has positiveexternalities - in other words, governments may do more than simply consume the taxincome. While distortions occur, consumption taxes like VAT are often considered superiorbecause they distort incentives to invest, save and work less than other types of taxation -in other words, a VAT discourages consumption rather than production. Advantages of VAT 1. Coverage – If the tax is considered on a retail level, it offers all the economic advantages of a tax of the entire retail price within its scope. The direct payment of tax spreads out over a large number of firms instead of being concentrated only on particular groups, such as wholesalers & retailers. 2. Revenue Security - Under VAT only buyers at the final stage have an interest in undervaluing their purchases, as the deduction system ensures that buyers at earlier stages are refunded the taxes on their purchases. Therefore, tax losses due to undervaluation will be limited to the value added at the last stage. Secondly, under VAT, if the payment of tax is avoided at one stage nothing will be lost if it is picked up at later stage. Even if it is not picked up later, the government will at least have collected the VAT paid at previous stages. Where as if evasion takes place at the final/last stage the state will lose only tax on the value added at that particular point. 3. Selectivity - VAT is selectively applied to specific goods & business entities. In addition, VAT does not burden capital goods because of the consumption-type. VAT gives full credit for tax included on purchases of capital goods. 4. Co-ordination of VAT with direct taxation - Most taxpayers cheats on sales not to evade VAT but to evade their personal and corporate income taxes. Operation of VAT resembles that of the income tax and an effective VAT greatly helps in income tax administration and revenue collection. Disadvantages of VAT 24
  • 25. 1. VAT is regressive 2. VAT is difficult to operate from position of both administration and business 3. VAT is inflationary 4. VAT favors capital intensive firmsCHAPTER 3 “METHDOLOGY OF THE STUDY”In is chaptera briefsummary is presentedto enable the readers to obtain a clear understandingofthe research design and the approach undertaken in this study. A number of decisions to betaken bythe researcher concerning the selection of propertopic find valid reliable source. Andneed lots of effort execution of research design and methodology. And execution theseeffortsincludes selection of a studyarea, population, and size of e sample, sampling method, datacollection method, and satiricalmethod for data analysis. In thischapter each one of these issue isdiscussed in detail.3.1 Target PopulationThe target population in this research refers to Minister Office and revenue department ofMOF.In order to get into a near to exact analysis in place, all secondary data was used which wasfrom reliable source.3.2 Sampling TechniqueConvenience sampling method is used for collecting information. The interviews have takenfrom members of the population who were conveniently available. And questionnaire distributedfor better result. 25
  • 26. 3.3 Sample SizeA Questioner designed consists of 10 questions asking the respondents provide their knowledge on VATand how to implement successfully? Which ways follow for successful administration? How to educatepeople? And also its best way to generate more money than sale tax; the questionnaire contains shortdescriptive questions. A sample of questionnaire is attached in appendix section of this research.The questionnaire is distributed among 20 experience professional revenue department staff. Who areworking on VAT implementation and taxation. 3.4 ProcedureThis section describes the way how data was collected. The MOF economics expertise team(minister senior economic advisors,World Bank and IMF expertise) is assigned to research andanalysis Vat for Afghanistansituation. As I put forward my request to minister office MOF. Theexcellences accept myrequestand allowedme to use their data and update figures. Personalinterviews of various expert employees were undertaken. Personal interviews were selected asthe mode of survey to make the study more meaningful & so that maximum information could becollected. A special concentration was given to the head of units and most of the interviews wereconducted with them. The minimum time of each interview was 25 minutes while the maximumtime was 35 minutes.3.5 Time FrameThe given time for writing this report was four months.3.6 Research Tools: 3.6.1 Primary Data: The primary data of this research is the information collected from MOF expertise which was generated from a questionnaire with some specific questions of both close and open ended on their research topic. The researcher distribute the questionnaire through personal visits also the researcher interview some economist expertise in Minister Office for filling some questionnaire. These Interviews were conducted from the employee and these interview were semi structured or even sometimes unstructured. 3.6.2 Secondary Data:The secondary data collected by researcher through Various VAT books and journals, VAT related notes studied at internet, IMF and World Bank research reports. 26
  • 27. 3.7 Limitations:? Chapter # 44.1Analysis and finding: This a analysis is based on primary data of the survey conducted to discover viewpoints of economic expertise from MOF. The researcher implemented this survey by interviewing fund revenue staff and interviewing MOF economic analyst in minister office. The findings of this survey analyzed and elaborate as below: Josh Barro, a center-right economic policy analyst (2012) , write recently the New York Times Economix blog, “A value-added tax raises a ton of money. The base (the total amount of goods that would be subject to tax) would range from one-third to one-half of gross domestic product.” Afanistan are at different stage of development, face different fiscal pressures, and have different capacitiesto raise tax revenues to meet their public sector revenue demands ofVat system can be achieved. Afghanistan is re-building its tax and customs administration in a difficult environment for revenue mobilization; significant progress has been made. Large taxpayer offices have been expanded and a medium taxpayer office has been established. Preparations for automating the ARD (Afghanistan revenue department) are proceeding. However, all the conditions for a successful introduction of a VAT are not present at this time. This is particularly the case for those conditions relating to services to tax payers, collection enforcement, filing compliance, access to independent review of decisions, and audit. Custom should be able to collect VAT under its normal customer procedures as it collects BRT today, and initially most of the VAT revenue will be collected by customs. The Vat system is very use full for government to generate more money. But replacing new system with old one is very difficult task. First we should educate or people about the system. Second most important tin is to administration of Value Added. Regarding o VAT system here are some questions and answers which were asked from economic analyst in MOF: 27
  • 28. Yes no q if no questionnaire then according our own analysis and according the source we have thenreasons about project problem it increase or decreaseLil interpretationChapter #5Conclusion and recommendationsChapter # 11.1 schemes: short description of each chapter1.2 introductionsIntroduction:Josh Barro, a center-right economic policy analyst (2012) , writerecently the New York Times Economixblog,A value-added tax raises a ton of money. The base (the total amount of goods that would besubject to tax) would range from one-third to one-half of gross domestic product. Meanwhile, isrunning well below the long-term trend—by about 3 percent of GDP. A 10 percent VAT with arelatively broad base could raise $750 billion a year, enough to pay for about a fifth of thefederal budget. This would make room for cuts in other taxes.A VAT is much less visible than an income tax—individuals dont have to file an annual returnfor it—so a tax that is paired with income-tax cuts might be surprisingly palatable, especially if itis phased in.The VAT offers an opportunity to expand the tax base. Politically, it may not be feasible toabolish the most expensive and popular income-tax deductions, such as those for mortgageinterest and health care. But the VAT starts fresh with a new base.1.3 literature or background (review)1.4 methodology of report1.5 28
  • 29. 29