VAT

(1ST April 2005)

Robby Nair
What is VAT
• Value Added Tax (VAT) is a general
consumption tax that is assessed on the value
added to goods & services. It is the indirect
tax on the consumption of the goods, paid by
its original producers upon the change in
goods or upon the transfer of the goods to its
ultimate consumers. It is based on the value
of the goods, added by the transferor. It is the
tax in relation to the difference of the value
added by the transferor and not just a profit.
Meaning
• It means every seller of goods and service
providers charges the tax after availing the
input tax credit. It is the form of collecting
sales tax under which tax is collected in each
stage on the value added of the goods.
• VAT is a multi-stage tax, levied only on value
that is added at each stage in the cycle of
production of goods and services with the
provision of a set-off for the tax paid at
earlier stages in the cycle/chain.
Mechanism
Old system VAT
Inferences
• multi-staged taxing system

• tax evasion would be checked

• higher revenues to the government

• The definition of input tax credit and

output tax credit
Difference between VAT and
CST
• Under the CST Act, the tax is collected at
one stage of purchase or sale of goods.
Therefore, the burden of the full tax bond
is borne by only one dealer, either the
first or the last dealer. However, under
the VAT system, the tax burden would be
shared by all the dealers from first to last
• VAT considers intra sales whereas CST
considers inter state sales
The VAT schemes- for goods
taxable under VAT
Who has to apply for
registration
• Proprietor
• Partner in case of partnership
• Karta – HUF
• Directors and authorized persons in case of CO’s
• When business is to be sold , discontinued,
transferred in case of death, amalgamation, sale-
fresh registration applied for
• Amendment of the registration certificate when
more goods are to be induced to the business
Records to be maintained
under VAT
• Purchase bills
• Sale bills
• Record of exempted sale
• Debit and credit notes
• Details of goods manufactured
Goods exempted from Vat
• Liquor
• Lottery tickets
• Petrol/ diesel/ ATF and motor spirit
• Newspapers, stocks and shares,
actionable claims
Why VAT
• Advantages • Disadvantages

• • Impact on GDP ratio

Coverage
• Less revenue to the
• Revenue Security government
• Selectivity • Complexity in the
• Co-ordination of refund procedure
VAT with direct • Multiple rates of tax
taxation • Maintenance of
different records
• Transparency
• Computerization
VAT in Punjab
Rates Items covered
0% Goods legally barred from taxation eg.
Newspaper
Goods of social implication eg. Book,
periodicals, slate and pencil.
Natural and unprocessed goods eg. Betel
nuts, earthen pots etc.

4% Goods of necessities(such as bread , butter,

drugs, paper), capital goods, declared
goods(such as iron and steel, hide and skin
etc) and industrial and agricultural inputs

12.5 % Revenue neutral rate is fixed on other goods

with floor rate of 10%

Exempted rates 1% floor rate shall be applicable to gold,

silver, precious and semi precious stones.
20% floor rate shall be applicable to liquor
Petrol, diesel and ATF will be out of VAT
regime
Special rates of 22%, 27.5% and 20% on few
goods