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VAT

(1ST April 2005)

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What is VAT

Value Added Tax (VAT) is a generalconsumption tax that is assessed on the valueadded to goods & services. It is the indirecttax on the consumption of the goods, paid by

its original producers upon the change ingoods or upon the transfer of the goods to itsultimate consumers. It is based on the valueof the goods, added by the transferor. It is the

tax in relation to the difference of the valueadded by the transferor and not just a profit.

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Meaning

It means every seller of goods and serviceproviders charges the tax after availing theinput tax credit. It is the form of collectingsales tax under which tax is collected in each

stage on the value added of the goods. VAT is a multi-stage tax, levied only on value

that is added at each stage in the cycle ofproduction of goods and services with the

provision of a set-off for the tax paid atearlier stages in the cycle/chain.

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Mechanism

Old system VAT

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Difference between VAT andCST Under the CST Act, the tax is collected at

one stage of purchase or sale of goods.Therefore, the burden of the full tax bond

is borne by only one dealer, either thefirst or the last dealer. However, underthe VAT system, the tax burden would beshared by all the dealers from first to last

VAT considers intra sales whereas CSTconsiders inter state sales

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The VAT schemes- for goodstaxable under VAT

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Who has to apply forregistration Proprietor

Partner in case of partnership

Karta HUF

Directors and authorized persons in case of COs

When business is to be sold , discontinued,transferred in case of death, amalgamation, sale-fresh registration applied for

Amendment of the registration certificate when

more goods are to be induced to the business

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Records to be maintainedunder VAT

Purchase bills

Sale bills

Record of exempted sale Debit and credit notes

Details of goods manufactured

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Goods exempted from Vat

Liquor

Lottery tickets

Petrol/ diesel/ ATF and motor spirit Newspapers, stocks and shares,

actionable claims

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Why VAT

Advantages

Coverage

Revenue Security Selectivity

Co-ordination ofVAT with directtaxation

Transparency

Computerization

Disadvantages

Impact on GDP ratio

Less revenue to thegovernment

Complexity in therefund procedure

Multiple rates of tax

Maintenance ofdifferent records

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VAT in Punjab

Rates Items covered

0% Goods legally barred from taxation eg.NewspaperGoods of social implication eg. Book,periodicals, slate and pencil.Natural and unprocessed goods eg. Betelnuts, earthen pots etc.

4% Goods of necessities(such as bread , butter,drugs, paper), capital goods, declaredgoods(such as iron and steel, hide and skinetc) and industrial and agricultural inputs

12.5 % Revenue neutral rate is fixed on other goodswith floor rate of 10%

Exempted rates 1% floor rate shall be applicable to gold,silver, precious and semi precious stones.20% floor rate shall be applicable to liquorPetrol, diesel and ATF will be out of VATregimeSpecial rates of 22%, 27.5% and 20% on fewgoods