V ALUE A DDED T AX A Presentation by Santosh. B MBA STUDENT – 2007 Batch PSG INSTITUTE OF MANAGEMENT, TAMIL NADU India’s Biggest Tax Reforms in the last 50 years…

What is Value Added Tax (VAT) ? Invented by French Economist - 1954 India - April 1, 2005 - states and Union Territories Transparent Tax Collected on sale of goods Applies for all manufacturers, wholesalers, retails VAT Chain - Its does away with Tax on Tax Consumer pays less - compared to Sales Tax Problems with Sales Tax

Invented by French Economist - 1954

India - April 1, 2005 - states and Union Territories

Transparent Tax Collected on sale of goods

Applies for all manufacturers, wholesalers, retails

VAT Chain - Its does away with Tax on Tax

Consumer pays less - compared to Sales Tax

Problems with Sales Tax

Rates of VAT Two basic rates A low rate of 4% on specified goods 12.5% for all other goods not specified elsewhere Three special rates 1% for Jewellery, precious stones & Metals 0% for G oods of local importance & Exports 20% for liquor (Floating Rates)

Two basic rates

A low rate of 4% on specified goods

12.5% for all other goods not specified elsewhere

Three special rates

1% for Jewellery, precious stones & Metals

0% for G oods of local importance & Exports

20% for liquor (Floating Rates)

VAT Applicability Below 5 Lakhs turnover – No Tax & No Registration required. Between 5 and 50 Lakhs – VAT/Composition scheme (optional) Above 50 Lakhs – VAT is compulsory.

Below 5 Lakhs turnover

– No Tax & No Registration required.

Between 5 and 50 Lakhs

– VAT/Composition scheme (optional)

Above 50 Lakhs

– VAT is compulsory.

Registering / De - Registering Application form – Basic Details of the business Partnership/Limited company – MOA attached A number of Encloses attached Display of Registration certificate -office premises Turnover falls below 5lakhs-De-Registering

Application form – Basic Details of the business

Partnership/Limited company – MOA attached

A number of Encloses attached

Display of Registration certificate -office premises

Turnover falls below 5lakhs-De-Registering

Calculation of VAT Input Tax-Tax Charged on purchase bills (Monthly Purchase value x Rate of Tax) Output Tax-Tax charged on Taxable sales of goods (Month Sales X Rate of Tax) Input Tax > Output Tax ; Tax Credit = Input Tax-Output Tax Tax Paid = Output Tax – (Input Tax + Tax Credit ) ILLUSTRATION

Input Tax-Tax Charged on purchase bills

(Monthly Purchase value x Rate of Tax)

Output Tax-Tax charged on Taxable sales of goods

(Month Sales X Rate of Tax)

Input Tax > Output Tax ; Tax Credit = Input Tax-Output Tax

Tax Paid = Output Tax – (Input Tax + Tax Credit )

ILLUSTRATION

Few points on VAT On the invoice-Items Amount, VAT Value and Total Value Discounts shown before VAT Not paid by 20th every month - 5000/- penalty Assessment made-Tax paid / Return filed by the dealer Return accepted-verifying the documents attached Audit of select cases

On the invoice-Items Amount, VAT Value and Total Value

Discounts shown before VAT

Not paid by 20th every month - 5000/- penalty

Assessment made-Tax paid / Return filed by the dealer

Return accepted-verifying the documents attached

Audit of select cases

Issues on Implementation No handbooks on VAT provisions/rules/procedures Deferral of introduction of state VAT Awareness-businesses and consumers Lack of political support/Strikes by traders Excise to check evasion Misuse of VAT

No handbooks on VAT provisions/rules/procedures

Deferral of introduction of state VAT

Awareness-businesses and consumers

Lack of political support/Strikes by traders

Excise to check evasion

Misuse of VAT

Current Happenings Punjab 39%, Maharashtra 9.2%, Kerala 6.2%, AP 12%, Delhi 29% Impact of VAT in Andhra Pradesh – 2005-07 Maharashtra tops list of 7 States in VAT collections VAT exemption for tobacco products hailed Delhi - States revenue growth rate slips to 22.4% VAT collections register 17% growth in West Bengal Removal of VAT on copra hailed – Kerala Traders refuse to sell Cigarettes – Kerala Revenue from VAT below expectations in TN UP-Mayawati government's decision

Punjab 39%, Maharashtra 9.2%, Kerala 6.2%, AP 12%, Delhi 29%

Impact of VAT in Andhra Pradesh – 2005-07

Maharashtra tops list of 7 States in VAT collections

VAT exemption for tobacco products hailed

Delhi - States revenue growth rate slips to 22.4%

VAT collections register 17% growth in West Bengal

Removal of VAT on copra hailed – Kerala

Traders refuse to sell Cigarettes – Kerala

Revenue from VAT below expectations in TN

UP-Mayawati government's decision

Conclusion Better control than previous tax system Increase in Government Revenue More Funds – Development of India Increases Single common Market in India Decrease in Pricing/No Declaration forms Demand for consumerable goods will go up Industries Produces more – Business Expansion World market – Higher Exports –Business Expansion Tremendous Job opportunities

Better control than previous tax system

Increase in Government Revenue

More Funds – Development of India

Increases Single common Market in India

Decrease in Pricing/No Declaration forms

Demand for consumerable goods will go up

Industries Produces more – Business Expansion

World market – Higher Exports –Business Expansion

Tremendous Job opportunities

Yes! Indeed its true that it is the Biggest Tax Reforms in the last 50 years THANK YOU ... References: The White Paper – By The Honorable Finance Minister Three Sixty Magazine – Vol 5; Feb 14, 2005 World Tobacco – issue 219; May 2007 How T o Deal With VAT – Kul Bhushan Indian Economy – UPSC Book Economic Times 1.Feb 19,2007 2.Mar 23,2007 3.July 26,2007 4.Oct 10,2007 5.Oct 20,2007 6.Oct 21,2007 7. Oct 24,2007

References:

The White Paper – By The Honorable Finance Minister

Three Sixty Magazine – Vol 5; Feb 14, 2005

World Tobacco – issue 219; May 2007

How T o Deal With VAT – Kul Bhushan

Indian Economy – UPSC Book

Economic Times

1.Feb 19,2007

2.Mar 23,2007

3.July 26,2007

4.Oct 10,2007

5.Oct 20,2007

6.Oct 21,2007

7. Oct 24,2007