Vat vs Gst Final

7/30/2019 Vat vs Gst Final

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Prepared By:Abhinav Narayan S.(1302-002)Akshay Bansal (1302-017)

Arunav Chakraverty (1302-035)Ashish Mishra (1302-036)Erri Anvesh Reddy (1302-049)Prashant Mishra (1302-193)


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A sales tax is a tax paid to a governing body for the sale of certain goods.

How is it calculated ?

The tax amount is usually calculated by applyinga percentage rate to the taxable price of a sale.

E.g.. Say Sales tax = 10%

Manufacturer purchases raw material from seller at $1.00

Now, he wants to sell it at $2.00 ant make a $1.00 profit

He will have to sell it for $2.00+$0.20=$2.20 to the consumer.


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Gross receipts tax

Levied on all revenues of a business. This tax has beencriticized for its "cascading" or "pyramiding" effect

It does not include the following:

Cash discounts

Returns and allowances

Transportation chargesseparately stated

Trade-ins Finance and service charges

Bad debts


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Inland tax on the sale, or production for sale, of

specific goods or a tax on a good produced for sale, or sold,

within a country or licenses for specific activities.

In common terminology, an excise Tax is distinguished from a

sales tax in 3 ways:

Narrow range of products .

An excise is typically heavier, accounting for a higher

fraction of the retail price of the targeted products

An excise is typically a per unit tax, costing a specific unit of

the item


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Only on tangible personal property purchased by a resident

of the assessing state for use, storage, or consumption in that

state (not for resale), regardless of where the purchase took

place.

If a resident of a state makes a purchase within his home state,

full sales tax is paid at the time of the transaction.

The Use tax applies when a resident of the assessing state

purchases an item that is not subject to his home state's salestax.


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Form ofconsumption tax

From the perspective of the buyer, it is a tax on the purchase

price.

From that of the seller, it is a tax only on the value added to a

product, material, or service,

For Accounting purpose- on the Price of the good.


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Similar to a sales tax or a VAT

taxes intermediate and possibly capital goods

Type of an Indirect tax

Applicable to a production process or stage.


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A significant increase in the price of goods , commodities or

services, due to implementation of a complex and expensive

tax system , thereby leading to multiple taxation on same

commodity, end result of which is an ever increasing burdenon consumers.

Based on several sub-components:

a) varying categorization

b) varying tax slabsc) varying commercial perceptions


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Tax burden from the stage of import to the stage of delivery hasmade the Indian products less competitive at international market.The purpose of Government to export goods and not taxes wouldnot be met.

Assesse may try to escape/ evade the tax liabilities as in total theyare very high.

Assesse find it difficult to comply with various laws with multiplerates, basis, elaborate procedures where cost of compliance is veryhigh.

Extra tax burden would be on the ultimate consumer as the taxesare passed on at every stages to end with the final consumer.


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Meaning

Value Added Tax is a multi point sales tax with set off for tax paid onpurchases. It is basically a tax on the value addition on the product.

Charged and collected by dealers on the price paid by the customer


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Output VAT : Amount received by a seller as a percentageof the gross sale price of goods or services

I nput VAT : Amount paid by a buyer as a percentage of thegross purchase price for goods or services used in

production.


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A trader registered for VAT effectively pays VAT only at one stage when hesells his goods.

This tax is the only amount, which has an effect on his selling price whichincludes VAT.

The VAT that he has paid as a part of his purchase price is charged on himby his suppliers.

This is not a cost to him because he gets it back by deducting it from tax on

his sales (Output Tax).

Therefore, VAT should have a minimum impact on his selling price.


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(a) Input purchased within the month : Rs.1,00,000/-

(b) Output sold in the month : Rs. 2,00,000/- (c) Input tax paid : Rs. 4,000/-

(d) Output tax payable : Rs. 20,000/-

(e) VAT payable during the month : Rs. 16,000/- after set-off/input

tax credit


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RECTIFICATION THROUGH VAT


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In the prevailing sales tax structure, a multiplicity of taxes,

such as turnover tax, surcharge on sales tax, additional

surcharge, etc.

Prices will in general fall Transparency will increase

There will be higher revenue growth


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1) Gross Product type (GVAT) - only purchase cost of raw materials is

allowed as deduction from sales.

No deduction is allowed in respect of capital expenditure

Limitation: This type of VAT is that capital goods carry a heavier tax burden,as they are taxed twice.

GVAT = C + I = W + P + D

Where C=Consumption, I=Investment and W=Wages,P=Profits (after

depreciation) and D=Depreciation


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2)Income type vat(IVAT): here both purchase cost of raw materials &

depreciation will be allowed as deduction from sales.

IV A T=C-I-D=W+P(wages & profit)

3) Wages type Vat (WVAT) -It exempts investment, Profit &

Depreciation from value added in producing the capital goods.

Limitations: Labor alone has to bear the entire burden of tax..

WVAT= C-I-D-P=W (wages alone)

4) Consumption type (CVAT) - In this type of case all business

purchase including capital items are taxed under VAT.

CVAT=W+P+D+I(wages+profit+depreciation+investment)


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Vat Rates in india

Zero Rate: Products on which a VAT is not levied.

Eg: exported goods, Unprocessed Agricultural Goods ,donated

goods sold by charity shops, equipment for the disabled, prescriptionmedications, water and sewage services, books and financialservices etc.

One Percent Rate: Gold, Silver, Precious and Semiprecious Stones;

Four Percent Rate: Basic Necessities, Capital Goods, Industrial andAgricultural Inputs, AED (Additional Duties of Excise) items likesugar, textiles and tobacco products.

There are 5 basic rates of VAT, namely,0 percent,1 percent, 4 per

cent and 12.5 per cent & 20 percent


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12.5 Percent rate:

All other normal products

20 percent Rate:

Narcotics

Mollasses


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If you sell zero-rated goods or services, you need not pay VAT as VAT

rate is 0% and you will be credited for the tax of raw materials.

Dual Benefit

But for exempt goods you need not pay VAT but you will not get any

credit for the tax of raw materials

Single benefit


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1) Detailed Records

2) Refund of Tax

3) Functional Problems

4) No Credit for Tax paid on Interstate Purchases before 2005


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Comprehensive value- added tax (VAT) on both Goods and

Services.

France was the first country to introduce this system in 1954.

194 Countries currently implementing GST with average rate

of around 15-18%.

Collected on value- added goods and services at each stage of

sale or purchase in the supply chain ( similar to VAT ).

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GST paid on the procurement of goods and services can be set

off against that payable on the supply of goods or services. The

end consumer has to bear this tax and GST is like a last-point retailtax .

Countries have a unified GST system . Brazil and Canada follow a

dual system GST is levied by both federal and state or provincial

governments.

In India, a dual GST is being proposed CGST and SGST .

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Main Objective - To remove the current complexity of

the Indian Taxation system.

Subsume many taxes like Excise Duty,Octroi,Luxury

Entertainment etc .. which are currently levied on goods

and services individually .


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Dual GST : Central GST & State GST act in parallel.

Destination based GST Fundamental Growth to the buying

state as tax is paid to their government .Common Base, Classification & Forms Compulsorily to be

levied by all states within a range ( Floor and Ceiling rate )

unlike VAT .

Cross credit between CGST and SGST is not allowed . They

stay on separate tracks and cannot be mixed.

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Impact on Prices of Goods and Services

Price is expected to go down

drastically in the long run .

Certainty of implementation- Government is expected to implement it

from April 2015.

Applicability of both CGST and the SGST on all transactions

Threshold Exemption available for GST

Difficult to administer small traders with their accounts .

The compliance cost and compliance effort saved for such small traders.

Minimum threshold has been set by government ( Exact Rate not fixed

yet )


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Goods Vs. Services Lines between the taxation of Goods & Services is constantly blurring. Duality of Charge

Sr.No.

Activity Customsduty

Central /State Excise

duty

Servicetax

VAT / CST

1. Intellectual PropertyServices

2. Import of Designs, TechnicalKnow etc..

3. Work Contract 4. Construction Services 5. Manufacture of Products

liable to State Excise


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Widening of tax base.

Positive impact on business community.

Expectation of boosting the economy by 2%.

Significant improvement of tax compliance.

Higher threshold limit for small traders.

Equitable distribution between manufacturing and services.

Prices may fall in the long run.


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Taxable Services

Exempt Services - Threshold

Negative list + exempt

116

Taxable

Services

Selective Approach selected services are taxable

Negative List allservices are taxable


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Effective percentage of entire service sector that is covered under the tax net = 20-

25% (First Concept Paper)

Estimated net revenue gain consequent to changes in the Union Budget 2012-13,

relating to Indirect Taxes, estimated at Rs. 45,940 crore (Budget Speech 2012-13)

Service tax changesRs. 18,660 crore additional revenue

Total Service Sector

(approx. 57% of GDP)

(A)

40% remains in the

tax net

40% attributable to

the Informal sector

(under threshold limit)

60% remains taxable

(20-25% of A)60% covered under

the negative list,

exemptions


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CentralCentral

Excise

Duty

Addnl.

Excise

Duties

Excise

Duty on

M&TP

Service Tax CVD

SAD

Surcharges

Cesses Statentry Tax (notOctroi)

Cesses andsurcharges on

goods andservices

Taxes onlotteries,betting,

gamblingLuxury Tax

EntertainmentTax (except

levied by localbodies)

VAT/Sales Tax

Dual GST

CST TO BE

PHASED

OUT


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Documents

Vat vs Gst Final