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The Value Added Tax (VAT) was devised by a German economist in the 18th Century. This multipoint tax system is not a new one but a part of the sales tax system. The introduction of VAT in India in 1986 as part of the central excise regime can be deemed to have been pioneered by the then Prime Minister VP Singh. The ultimate aim of the VAT is to open all gates of Indian economy into a single unified market. VAT was introduced in Tamil Nadu (TN) on January 1, 2007. The VAT Act and Rules were published by TN Government in Gazette on October 28, 2006.
Value Added Tax (VAT) is a multipoint tax system with provision for granting set-off (credit) available for tax paid on corresponding purchases. The full tax is collected at each transaction but paid on the value-added portions only. Therefore, it is called Value Added Tax or VAT. In simple terms "value added" means difference between selling price and purchase price. It is different from a retail sales tax. VAT is levied in parts at every stage of the production and distribution process, namely, manufacturing, wholesaling and retailing. In the 18th Century, a German economist first devised VAT. It was a tax on goods that did not affect the cost of either the manufactures or the distributors but was collected on the final price charged to the consumer. The tax was fixed as a percentage on the final price.
In India, particularly the trading community exploits loopholes in any system administered by the Government. If a well-administered system comes in, it will close avenues for traders and businessmen to evade paying taxes. Everyone pays tax to the government whenever they purchase goods and services. This tax is collected by the supplier of those goods and services. In our country taxes can be classified as direct and indirect taxes. Direct taxes are those which are levied directly on the income of a person. Indirect taxes are those which are levied on the purchase of goods and services, which is ultimately borne by the customers only. |
