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VAT Tax - Theory of Levying - Essay Example

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VAT is short for Value-Added Tax, which is a tax on the sale or import of goods. It is paid on the acquisition of raw material and other goods from domestic suppliers. VAT was first introduced on January 1, 1992 and it replaces the 'business tax', and is a utilization of full tax credit, a tax on total consumption expenditure…
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VAT Tax - Theory of Levying
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Download file to see previous pages The main advantage of VAT is the cascading type tax (CTT); the biggest limitation from a CTT to a VAT is the ability of an increase in inflation. A book, The Modern VAT was published in 2001 by the International Monetary Fund and it defines VAT as "A broad-based tax levied on commodity sales up to and including, at least, the manufacturing stage, with systematic offsetting of tax charged on commodities purchased as inputs -- except perhaps on capital goods -- against that due on outputs."
India and the US, two of the worlds democracies, don't have VAT system because the idea behind the VAT is system is a tax to end all taxes, but other countries that have VAT don't levy entry or luxury duty. If the prices of stock transfer goods increase then the impact of the VAT system would be, the "Denial of tax credit in respect of inter-state stock transfers will prejudice investment in less developed states or states with relatively small 'internal' markets." Then every state government with the VAT system would have a draft law that wouldn't allow VAT already paid off elsewhere. Tax experts now state that the price of consumer goods is increasing by 15-20%.
The ministry of finance and state admin of tax posted a notice about the increase on electronically products in 1998, which caused the VAT to increase from 9% to 11%. The VAT rate for textiles is 15%, for the sale/import of most goods is 17%, and 13% for vegetable oil, natural gas, and chemical fertilizer.
An organization that makes taxable goods have 7% tax (inclusive of government taxes), this is the majority of businesses. Some goods have a 0% VAT, in this case the supplies does not collect the tax, but can put a recovery on its input tax. Some 0% VAT items are:
Exported goods
Services provided in locally but used overseas
Services of international transportation by air and sea.
Ministry, Department, Local Government or public enterprises sales
Sale of goods and services to the United Nation
Sale of goods and services from one warehouse or enterprise to another.
The taxpayers net tax is calculated and the beginning of each month that credits the amount of VAT paid on inventories, capital goods or raw materials that were for sale or in the process of consumption during the on the versus the total amount of VAT due on for the goods or services in the same months. (Input Tax vs. Output Tax).
What are VAT exemptions
There are 10 categories that are excluded of the VAT tax, but keep in mind that a trader under any of these exemptions can't use input tax credits. Some exemptions are as follows: small entrepreneurs, unprocessed farm products (fertilizer, pesticides etc), newspapers, magazines, textbooks, domestic and international transport, health and educational and medical services, libraries and museum services, religious services and charity
Tax Invoice
The VAT-payers have to issue tax invoices to show the details of the value of goods sold. An invoice is necessary because it is evidence of input tax for the taxpayers that buy goods. A tax invoice consists of:
An obvious mention of 'TAX INVOICE' on the paper
the name, address, and tax identification number of the issuer;and the purchaser
The serial numbers of the tax invoice and the tax invoice book
the type, category, quantity, and value of the goods or serv ...Download file to see next pagesRead More
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