VAT structure in States

K. RajaramanCommissioner of Commercial taxes

Government of TNWww.tnvat.gov.in

Sales Tax - Introduction

Sales tax was levied on sale of goods only. After 46th Constitutional amendment, works

contract, hire purchase, leasing etc have also been brought to the net of sales tax.

Levy of ST/VAT is a major source of revenue to the States. 60-70% of SOTR

Local sales tax was levied under the respective State General Sales Tax law.

Initial multi-point levy of sales tax was later converted into single point levy.

Central Sales Tax - Introduction

To levy tax on inter-State sales and to regulate other inter-State transactions, the Parliament enacted the Central Sales Tax(CST) Act in 1956.

CST is an origin based levy to be levied on inter-State sales only by the origin State.

CST is levied at 2% and collected by the origin State and retained by it.

CST Act exempts: Interstate transfers (other than sale) Movement in course of exports or imports

Introduction to VAT

Single point sale tax levy was cascading and there were multiple rates widely different from State to State.

There were also different kinds of industrial incentives in the form of deferral and waiver of sales tax.

The above factors made business inefficient and distorted business decisions.

To remove the above deficiencies, VAT system of levy was introduced in States from 2005, in tune with global tax practice.

Liability and Taxable Events under VAT

Taxable Event

Sale /purchase of goods

Works Contract

Lease of moveable goods

Intangible Goods

Under the VAT laws, the liability for payment of VAT lies with the seller, however, the seller can recover VAT from the buyer.

VAT is leviable on sale of all moveable goods other than newspapers, actionable claims, stocks, shares and securities.

Purchase tax leviable when purchases made from unregistered dealers or when goods transferred out of tax has not suffered tax

VAT rates

Socially important goods like agriculture inputs, unprocessed agriculture products, textiles, etc., are exempt

Precious Metals and precious stones are liable to a special VAT rate of 1%

Concessional rate category of 5% for basic necessities (such as medicines and drugs), agricultural produce, information technology, industrial inputs, capital goods and declared goods

Goods which are not covered under any other category are taxable at 14.5% under the residual category.

Floor rate of 20% was fixed for non-VAT goods like Liquor, tobacco and petroleum products and are liable for single point levy without ITC

Exports are been zero rated.

Inter State transactions : CST Act

Interstate B2B sales are taxed at 2% on production of documents defined under CST Act

Interstate B2C sales are treated as local sale and taxed at applicable VAT rates

Interstate Stock transfers & movement in course of exports are exempt subject to production of documentation defined under CST Act

Input Tax Credit

• Input Tax Credit (ITC) is the credit of tax paid on input goods and capital goods.

• Adjustment of ITC is allowed against VAT paid on intra-state sales and CST on inter-state sales.

• A debit of 3% from ITC is applicable on interstate stock transfers

• ITC from capital goods used for manufacturing of taxable goods can be adjusted over a 3 year period

• State VAT Acts generally provide a negative list of goods on which ITC is not available, such as automobiles (including commercial vehicles), personal use items, fuels, etc.

Reforms in Tax Administration

Along with VAT, simultaneous reforms have been introduced in tax administration by way of organizational reforms to make it more business friendly.

A 24x7 Call center /Help Desk for taxpayers and officers is fully operational

Services of e-filing of return, e-payment of tax, e-generation of declarations and delivery notes functional since 2010.

LTU/FTAC for large tax payers functional in Chennai/Coimbatore. Plans to expand

Reforms in Tax Administration

Deemed assessment procedure is followed since 2011.

Advance Ruling Committee functionalSales of input goods used in manufacture of

goods to be exported by SEZ manufacturing units are treated as exports and zero rated.

Any other sales made to authorized operations of SEZ units are exempt from levy of tax.

Inter-Sales made to SEZ units are exempt.Tax Litigation Policy likely to be put in place.

e-Governance

A state of art VAT workflow system ready to go LIVE shortly (TCS is tech partner) with completely Online:

Registration Returns Revision of assessment process Payments and refunds Appeals Transportation forms Statutory Interstate transaction documents DSC option for paperless transactions

Thank you !

cct@ctd.tn.gov.in