VALUE ADDED TAX (VAT)VALUE ADDED TAX (VAT)

VAT TerminologyVAT Terminology

VAT – Value Added Tax – VAT – Value Added Tax –

This is the new system being implemented This is the new system being implemented from April 1, 2003 in Karnatakafrom April 1, 2003 in Karnataka

Unlike, Sales Tax, VAT is calculated based on Unlike, Sales Tax, VAT is calculated based on Input & Output variation. Input & Output variation.

TYPES OF TYPES OF REGISTRATIONREGISTRATION

COMPULSORY REGISTRATIONCOMPULSORY REGISTRATION

VOLUNTARY REGISTRATIONVOLUNTARY REGISTRATION

SUO MOTU REGISTRATIONSUO MOTU REGISTRATION

TEMPORARY REGISTRATIONTEMPORARY REGISTRATION

VAT REGISTRATIONVAT REGISTRATION

COMPLUSARY REGISTRATIONCOMPLUSARY REGISTRATION

1.1. TURNOVER EXCEEDING 2 LAKHSTURNOVER EXCEEDING 2 LAKHS

2.2. TRANSFER OF BUSINESSTRANSFER OF BUSINESS

3.3. CAUSAL DEALERSCAUSAL DEALERS

OPTIONAL REGISTRATIONOPTIONAL REGISTRATION

Other Dealers not covered above registration Other Dealers not covered above registration is optional.is optional.

VAT RATESVAT RATES

There are three main rates for Input and There are three main rates for Input and Output Vat tax. Output Vat tax.

0% for Agriculture products etc (Exempted 0% for Agriculture products etc (Exempted Goods)Goods)

1% for Jewellery1% for Jewellery 4% for Pharmacy, Computers, Soaps etc.4% for Pharmacy, Computers, Soaps etc. 12.5% for FMCG, Automobile12.5% for FMCG, Automobile

SCHEDULES TO VAT RATESSCHEDULES TO VAT RATES

EXEMPTED GOODSEXEMPTED GOODS

1.1. Agricultural implements manually operatedAgricultural implements manually operated

2.2. Cotton and silk yarnCotton and silk yarn

3.3. Curd and Butter MilkCurd and Butter Milk

4.4. National FlagNational Flag

5.5. SaltSalt

Taxable at One Percent Taxable at One Percent

1.1. Bullion and SpecieBullion and Specie

2.2. JewelleryJewellery

3.3. Precious and Semi-precious stonesPrecious and Semi-precious stones

Taxable at Four PercentTaxable at Four Percent

1.1. Agricultural implements not operated Agricultural implements not operated manuallymanually

2.2. All kinds of BricksAll kinds of Bricks

3.3. Animal hairAnimal hair

4.4. KeroseneKerosene

5.5. UmbrellaUmbrella

Taxable at Twenty PercentTaxable at Twenty Percent

1.1. Narcotics Narcotics

2.2. Molasses Molasses

SALES TAXSALES TAX

100 250 300100 250 300

X Y ZX Y Z

TAX = 100 * 10% TAX = 250 * 10% TAX=300*10%TAX = 100 * 10% TAX = 250 * 10% TAX=300*10%

= 10= 10 = 25 =30 = 25 =30

VAT TAXATIONVAT TAXATION

100 250 300100 250 300

X Y ZX Y Z

TAX = 100 * 10% TAX = 150 * 10% TAX=50*10%TAX = 100 * 10% TAX = 150 * 10% TAX=50*10%

= 10= 10 = 15 = 5 = 15 = 5

VAT Terminology – Input TaxVAT Terminology – Input Tax

INPUT TAXINPUT TAX Input Tax is the Tax shown in our purchase Input Tax is the Tax shown in our purchase

bills. bills. As per the norms, every trader need to show As per the norms, every trader need to show

VAT separately and it is considered as Input VAT separately and it is considered as Input Tax. Tax.

Apart from Trade Purchases, Tax on Capital Apart from Trade Purchases, Tax on Capital Goods purchases like A.C., Computers etc.. is Goods purchases like A.C., Computers etc.. is also considered for this Input Tax. also considered for this Input Tax.

INPUT VAT TAXATIONINPUT VAT TAXATION

10001000

X YX Y

INPUT TAX for Y is 1000*10%=100INPUT TAX for Y is 1000*10%=100

VAT Terminology – Output TaxVAT Terminology – Output Tax

OUTPUT TAXOUTPUT TAX

Output Tax is the Tax charged on all the Output Tax is the Tax charged on all the Taxable sales of a Vat Dealer.Taxable sales of a Vat Dealer.

For Ex. Tax shown as Output Tax and it For Ex. Tax shown as Output Tax and it becomes Input Tax for our customer.becomes Input Tax for our customer.

OUTPUT VAT TAXATIONOUTPUT VAT TAXATION

10001000

X YX Y

OUTPUT TAX for X is 1000*10%=100 OUTPUT TAX for X is 1000*10%=100

NET TAXNET TAX

NET TAX = OUTPUT TAX – INPUT TAXNET TAX = OUTPUT TAX – INPUT TAX

Tax payable if OUTPUT TAX is greater than Tax payable if OUTPUT TAX is greater than INPUT TAXINPUT TAX

Tax refund if INPUT TAX is greater than Tax refund if INPUT TAX is greater than OUTPUT TAX ( VAT CREDIT).OUTPUT TAX ( VAT CREDIT).

NET TAX COMPUTATIONNET TAX COMPUTATION

100 150 200100 150 200

X Y ZX Y Z

OUTPUT TAX FOR Y = 150 * 10% =15OUTPUT TAX FOR Y = 150 * 10% =15 INPUT TAX FOR Y = 100* 10 %=10INPUT TAX FOR Y = 100* 10 %=10 TAX PAYABLE = 15 – 10 = 5TAX PAYABLE = 15 – 10 = 5

NET TAX COMPUTATIONNET TAX COMPUTATION

100 75 50100 75 50

X Y ZX Y Z

OUTPUT TAX FOR Y = 75 * 10% =7.5OUTPUT TAX FOR Y = 75 * 10% =7.5 INPUT TAX FOR Y = 100* 10 % = 10INPUT TAX FOR Y = 100* 10 % = 10 INPUT CREDIT = 10 – 7.5 = 2.5INPUT CREDIT = 10 – 7.5 = 2.5

Input Tax Amount CalculationInput Tax Amount Calculation

Month Purchases Gross Value X Rate of TaxMonth Purchases Gross Value X Rate of Tax For ex.: For ex.: Input Tax = 10,00,000 * 0.04 = 40,000/-Input Tax = 10,00,000 * 0.04 = 40,000/- Purchases, includes Trade purchases and Purchases, includes Trade purchases and

Capital Goods purchases as per the existing Capital Goods purchases as per the existing VAT Rate.VAT Rate.

Output Tax Amount Calculation Output Tax Amount Calculation

Month Sales X Rate of TaxMonth Sales X Rate of Tax Output Tax = 20,00,000 * 0.04 = 80,000/-Output Tax = 20,00,000 * 0.04 = 80,000/-

On the invoice, we should show, Items On the invoice, we should show, Items Amount, VAT Value and Total ValueAmount, VAT Value and Total Value

In case of discounts, it should be given before In case of discounts, it should be given before VAT.VAT.

BOOKS TO BE MAINTAINEDBOOKS TO BE MAINTAINED

Purchase RegisterPurchase Register Sales RegisterSales Register URD RegisterURD Register Cash RegisterCash Register Stock RegisterStock Register Labour RegisterLabour Register Accounting for Works ContractAccounting for Works Contract

AUDIT COMPLIANCEAUDIT COMPLIANCE

Every Dealer whose taxable turnover exceeds Every Dealer whose taxable turnover exceeds 25 lakhs must get his books audited by a 25 lakhs must get his books audited by a practicing Chartered Accountant or by Sales practicing Chartered Accountant or by Sales Tax practioners.Tax practioners.

Every company exceeding the above limit has Every company exceeding the above limit has to get their books audited by practicing to get their books audited by practicing Chartered Accountant only(normally Statutory Chartered Accountant only(normally Statutory Auditor) Auditor)

DATE OF FILLING THE DATE OF FILLING THE RETURNSRETURNS

Monthly Sales and Purchases must be filled by Monthly Sales and Purchases must be filled by every dealer before the 20every dealer before the 20 thth of next month of next month

Annual returns must be filled before May 31Annual returns must be filled before May 31stst

Audit Report has to be filled before 31Audit Report has to be filled before 31stst Dec Dec

Revised tax returns must be filled before six Revised tax returns must be filled before six months from the end of relevant tax period.months from the end of relevant tax period.

FORMS OF VATFORMS OF VAT

FORM NO.FORM NO.

1.1. VAT 1VAT 1

2.2. VAT 2VAT 2

3.3. VAT 7VAT 7

4.4. VAT 10VAT 10

5.5. VAT 100VAT 100

6.6. VAT 115VAT 115

7.7. VAT 240VAT 240

PARTICULARSPARTICULARS

RegistrationRegistration

Amendment of VATAmendment of VAT

Registration CertificateRegistration Certificate

Cancellation of Regt Cancellation of Regt

Monthly Returns Monthly Returns

Annual Returns Annual Returns

Audit ReportAudit Report

KINDS OF KINDS OF ASSESSMENTASSESSMENT

Self AssessmentSelf Assessment

Protective AssessmentProtective Assessment

Best Judgement AssessmentBest Judgement Assessment

ReassessmentReassessment

Authorities of VATAuthorities of VAT

COMMISSIONERCOMMISSIONER

DEPUTY COMMISSIONERDEPUTY COMMISSIONER

ASSISTANT COMMISSIONERASSISTANT COMMISSIONER

STATE REPRESENTAIVESTATE REPRESENTAIVE

COMMERCIAL TAX OFFICERSCOMMERCIAL TAX OFFICERS

GUIDANCE NOTE BY ICAIGUIDANCE NOTE BY ICAI

Input tax paid on purchases of inputs (VAT Credit) Input tax paid on purchases of inputs (VAT Credit) should not be included in the cost of purchasesshould not be included in the cost of purchases

VAT credit which will be available in future on the VAT credit which will be available in future on the goods lying in stock at inception of VAT scheme goods lying in stock at inception of VAT scheme should be credited to the opening stock Account at should be credited to the opening stock Account at the inception of the scheme itself.the inception of the scheme itself.

Payment of VAT should not be treated as an Payment of VAT should not be treated as an expense in the financial statements of the enterprise.expense in the financial statements of the enterprise.

Benefits of VATBenefits of VAT

1)1) No Cascading EffectNo Cascading Effect

2)2) CoverageCoverage

3)3) Revenue security Revenue security

4)4) Selectivity Selectivity

5)5) Co-ordination of VAT with direct taxation Co-ordination of VAT with direct taxation

COMPARITIVE STUDY OF VAT COMPARITIVE STUDY OF VAT AND CSTAND CST

KSTKST VATVAT Multiplicity of levies on Multiplicity of levies on the same tax the same tax basebase Complex structureComplex structure Cascading EffectCascading Effect Higher tax ratesHigher tax rates No economic benefit to No economic benefit to small industriessmall industries

Multiplicity of levies on Multiplicity of levies on different tax basedifferent tax base Simple to understandSimple to understand No Cascading EffectNo Cascading Effect Lower Tax ratesLower Tax rates Economic benefit to Economic benefit to small industriessmall industries

VAT RevenueVAT Revenue

VAT implementing states has shown an VAT implementing states has shown an increase of 27.1 per cent during the first increase of 27.1 per cent during the first quarter of August 2006 fiscal year-on-year. quarter of August 2006 fiscal year-on-year.

The tax revenue of the VAT implementing The tax revenue of the VAT implementing states showed around 13.8 per cent increase in states showed around 13.8 per cent increase in 2005-06 over tax revenue of 2004-05, which is 2005-06 over tax revenue of 2004-05, which is higher than the compound annual growth rate higher than the compound annual growth rate of sales tax revenues of these states for last of sales tax revenues of these states for last five years.five years.

VAT IN OTHER COUNTRIESVAT IN OTHER COUNTRIES

ARGENTINAARGENTINA BRAZILBRAZIL NEPALNEPAL CANNADACANNADA

VAT IN OTHER COUNTRIESVAT IN OTHER COUNTRIES

NAME OF NAME OF COUNTRIESCOUNTRIES

1.1. SwedenSweden

2.2. PolandPoland

3.3. United KingdomUnited Kingdom

4.4. AustraliaAustralia

5.5. CanadaCanada

6.6. ChinaChina

VATE RATE IN %VATE RATE IN %

2525

2020

17.517.5

88

66

1717

In Brazil, in 1968, VAT revenue, as a In Brazil, in 1968, VAT revenue, as a percentage of total tax revenue was 51.03, percentage of total tax revenue was 51.03, while in 1985 it became 21.91, and in the while in 1985 it became 21.91, and in the period in between, it gradually fell.  In period in between, it gradually fell.  In comparison, income tax rose from 21.8 per comparison, income tax rose from 21.8 per cent in 1968 to 58.97 per cent in 1985.cent in 1968 to 58.97 per cent in 1985.

MODEL VAT FOR INDIAMODEL VAT FOR INDIA

One Country One VATOne Country One VAT CST must be abolishedCST must be abolished Only few Tax RatesOnly few Tax Rates Only Annual ReturnsOnly Annual Returns Paperless OfficesPaperless Offices Free movement of goodsFree movement of goods All services must be taxedAll services must be taxed

UK VATUK VAT

REGISTRATIONREGISTRATION

TAX RATESTAX RATES

FILLING OF RETURNSFILLING OF RETURNS

THANK YOUTHANK YOU