Whenever tax is levied on exchanges, it is termed as Value Added Tax (VAT). Generally, such a tax is indirect in nature, as it is not directly collected from the person who bears the ultimate burden of the tax payment (consumer). Unlike sales tax, which is levied on the overall value of the exchange, VAT is imposed on the added value that follows each exchange. Thus, VAT is actually a tax on the value addition of a product and it adopts a neutral stance, as regard the total number of passages that exist between the producer of a particular product and the final consumer.
Normally, the end-consumers of various products or services are not entitled to recover VAT on purchases. However, VAT can be recovered by businesses on the purchased products and services that they buy, to make other supplies or services that they intend to sell to the end-users (either directly or indirectly). In this manner, the overall tax that is imposed at every stage of an economic exchange remains a constant fraction of the value added by a business to its products. Moreover, when it comes to VAT, businesses incur the various costs associated with tax collection, rather than the state.
The much-delayed Value Added Tax (VAT) was introduced in India from 1st April 2005, at a rate of 12.5%. VAT was introduced to substitute the sales tax in India and to keep a check on tax evasion at the various stages of a tax chain. Various states like Andhra Pradesh, Maharashtra, Madhya Pradesh, Kerala, Delhi and Haryana have introduced VAT on limited goods and services. However, VAT in its true nature failed implementation in any of these places and was finally called off. In many places, VAT also faced criticism as a regressive form of tax.
However, according to many industry watchers, proper introduction and enforcement of VAT in India can contribute towards alleviating the fiscal deficit burden of the country. The revenues earned from VAT can be effectively utilized to deal with various fiscal deficit problems. Thus, VAT can form a part of the fiscal consolidation strategy for the country. Moreover, VAT being a globally recognized and approved form of taxation, will also depict India in an amiable light in the World Trade Organization regime.
Vat Tax Rate
VAT can be classified under the following tax slabs.
