VAT (Value-Added Tax)
What is vat (Value Added Tax)?
VAT is a type of indirect tax and a consumption-based tax placed on a product (goods and services), whenever values are added at each stage of the supply chain, from production to distribution till the point of sale. The taxpayer is a consumer, VAT is a tax placed on a basis of consumption and not on the basis of income or something else.
VAT was introduced on 1 April 2005. Vat is a very commonly used taxation system used in more than 160 countries. And the most commonly used term in the European Union. Now we also know this taxation system with the name of GST. The vat was introduced to make a Single Integrated Market.
But the experts and advocate says it raises government revenue without pushing success or wealth, income tax due, and it is simpler and more standard than traditional sales tax.
Advantage of VAT.
Vat is very a successful system of collecting tax because it is based on taxpayer’s consumption spent on products rather than income. VAT is not an individual tax but a tax that is included in a product price that we pay to the retailer. So we can compare it with sales tax, Its also a Flat tax and that’s why it’s less progressive. Collecting tax on expenditure helps the market to grow.
The new Version or Avatar.
Now we all know the old version of taxation on goods which was VAT. But now we know it as GST (Goods and Service Tax). We will discuss in short about GST here. So GST is Basically a newer form of VAT. It is an improved form of taxation from the previous one because of many reasons like the cascading effect, simpler the audit process, and many more which we will discuss here in some time.
Disadvantage of VAT
It implies a very bad effect which is cash cascading effect of taxes, cascading basically means the addition of tax on every level from manufacturing to the retailer. It was not possible to claim an input tax credit (ITC) on Service Under VAT.an
Vat has some more disadvantages because different states have different vat rates which lead to confusion in collection and awareness. And it not ends here, the laws in a different state have different types and meaning different laws in different states.
Difference Between VAT and GST.
VAT is sales of goods tax and it is conducted on every stage, on the other hand, GST is a goods and service tax which is conducted on every supply. Under VAT, registration is important if the turnover is greater than ten lakhs. In GST it’s compulsory if the turnover is greater than twenty lakhs.
As per today’s data, Excise Duty is levied on the manufacture of Excisable goods, and in the case of GST, it’s not levied.
Something you should know about VAT.
VAT is not the most successful system of taxation but it’s been used in almost all countries around the world for a certain time period. The most popular time for VAT was 1980 to 1995.
Different countries having different VAT systems but the starting result for every country was almost the same. With the huge impact of the load on the Economy. Because it was been implemented on every stage the company has to pay additional money to the authority because of which in the end the consumer has to pay a lot more than usual. Still, after GST, Vat is applicable to many products.
Opinions on VAT.
Some say it raises the tax in a respectful manner and helps the system, but some critics say it harms the economy and especially the poor and middle class.
In the starting, the phase of implementation of VAT many countries have high losses but in the long term, they found it very profitable. On the other hand, many countries changed their type in their own way and implemented it with time.
Even the collection system is clear enough. Big businesses get affected but not for a long period of time. But in the case of small businesses, they can bypass this taxation system by just escaping the receipt of a particular product or service. This can happen easily because this system of taxation gives more benefits to rich and wealthy people and a load to other classes. Because they use their income to fulfill their daily uses and buy domestic products.
VAT is simply a difference of output tax in comparison to input tax.
Most Asked Question on Value Added Tax
Q1. What is the effect of Cascading Effect positive or negative?
Answer:- When we talk about the modern taxation system it is an advantage and that’s what book has updated. But when a production company has paid the taxes on a product on different levels. Which causes discomfort and problems in the overall system which we have discussed in the videos. And all this was happening earlier now it has transformed into GST and the way of payment and collecting taxes has changed.
Q2. What is IGST?
Answer:- IGST or Integrated Goods and Service Tax is a part of Goods and Service Tax (GST). It is one of the three categories under the Goods and Service Tax (CGST, IGST, and SGST) with the concept of one tax. IGST or Integrated Goods and Service Tax comes under the Integrated Goods and Service Tax Act 2016.
Q3. What is Cascading Effect?
Answer:- As we have discussed above that Cascading effect is the process of taxation in which the tax gets added upon every stage of supply which creates a tax upon an already taxed amount.
Q4. Is VAT still applicable to some items after GST?
Answer:- Yes, It is still applicable to some products and remember the taxes are the same but the way of implementations are different with different names.
Q5. Are GST and VAT same?
Answer:- VAT was an older way of taxation which is been replaced or we can say reorganized by GST a newer way of collecting tax.