VALUE ADDED TAX (VAT)

VAT Terminology

VAT Value Added Tax This is the new system being implemented from April 1, 2003 in Karnataka Unlike, Sales Tax, VAT is calculated based on Input & Output variation.

TYPES OF REGISTRATION

COMPULSORY REGISTRATION VOLUNTARY REGISTRATION SUO MOTU REGISTRATION TEMPORARY REGISTRATION

VAT REGISTRATION

1.
2. 3.

COMPLUSARY REGISTRATION TURNOVER EXCEEDING 2 LAKHS TRANSFER OF BUSINESS CAUSAL DEALERS

OPTIONAL REGISTRATION Other Dealers not covered above registration is optional.

VAT RATES

There are three main rates for Input and Output Vat tax. 0% for Agriculture products etc (Exempted Goods) 1% for Jewellery 4% for Pharmacy, Computers, Soaps etc. 12.5% for FMCG, Automobile

SCHEDULES TO VAT RATES

1.
2. 3. 4. 5.

EXEMPTED GOODS Agricultural implements manually operated Cotton and silk yarn Curd and Butter Milk National Flag Salt

1.
2. 3.

Taxable at One Percent Bullion and Specie Jewellery Precious and Semi-precious stones

1.

2. 3. 4.

5.

Taxable at Four Percent Agricultural implements not operated manually All kinds of Bricks Animal hair Kerosene Umbrella

1.
2.

Taxable at Twenty Percent Narcotics Molasses

SALES TAX

100

250

300

TAX = 100 * 10% TAX = 250 * 10% TAX=300*10% = 10 = 25 =30

VAT TAXATION

100

250

300

TAX = 100 * 10% TAX = 150 * 10% TAX=50*10% = 10 = 15 =5

VAT Terminology Input Tax

INPUT TAX Input Tax is the Tax shown in our purchase bills. As per the norms, every trader need to show VAT separately and it is considered as Input Tax. Apart from Trade Purchases, Tax on Capital Goods purchases like A.C., Computers etc.. is also considered for this Input Tax.

INPUT VAT TAXATION

1000

X
INPUT TAX for Y is 1000*10%=100

VAT Terminology Output Tax

OUTPUT TAX Output Tax is the Tax charged on all the Taxable sales of a Vat Dealer. For Ex. Tax shown as Output Tax and it becomes Input Tax for our customer.

OUTPUT VAT TAXATION

1000

X
OUTPUT TAX for X is 1000*10%=100

NET TAX

NET TAX = OUTPUT TAX INPUT TAX Tax payable if OUTPUT TAX is greater than INPUT TAX Tax refund if INPUT TAX is greater than OUTPUT TAX ( VAT CREDIT).

NET TAX COMPUTATION

100 150 200

OUTPUT TAX FOR Y = 150 * 10% =15 INPUT TAX FOR Y = 100* 10 %=10 TAX PAYABLE = 15 10 = 5

NET TAX COMPUTATION

100 75 50

OUTPUT TAX FOR Y = 75 * 10% =7.5 INPUT TAX FOR Y = 100* 10 % = 10 INPUT CREDIT = 10 7.5 = 2.5

Input Tax Amount Calculation

Month Purchases Gross Value X Rate of Tax For ex.: Input Tax = 10,00,000 * 0.04 = 40,000/Purchases, includes Trade purchases and Capital Goods purchases as per the existing VAT Rate.

Output Tax Amount Calculation

Month Sales X Rate of Tax Output Tax = 20,00,000 * 0.04 = 80,000/-

On the invoice, we should show, Items Amount, VAT Value and Total Value In case of discounts, it should be given before VAT.

BOOKS TO BE MAINTAINED

Purchase Register Sales Register URD Register Cash Register Stock Register Labour Register Accounting for Works Contract

AUDIT COMPLIANCE

Every Dealer whose taxable turnover exceeds 25 lakhs must get his books audited by a practicing Chartered Accountant or by Sales Tax practioners. Every company exceeding the above limit has to get their books audited by practicing Chartered Accountant only(normally Statutory Auditor)

DATE OF FILLING THE RETURNS

Monthly Sales and Purchases must be filled by every dealer before the 20th of next month Annual returns must be filled before May 31st Audit Report has to be filled before 31st Dec

Revised tax returns must be filled before six months from the end of relevant tax period.

FORMS OF VAT
1.
2. 3. 4. 5. 6. 7.

FORM NO. VAT 1 VAT 2 VAT 7 VAT 10 VAT 100 VAT 115 VAT 240

PARTICULARS Registration Amendment of VAT Registration Certificate Cancellation of Regt Monthly Returns Annual Returns Audit Report

KINDS OF ASSESSMENT

Self Assessment Protective Assessment Best Judgement Assessment Reassessment

Authorities of VAT
COMMISSIONER DEPUTY COMMISSIONER

ASSISTANT COMMISSIONER
STATE REPRESENTAIVE COMMERCIAL TAX OFFICERS

GUIDANCE NOTE BY ICAI

Input tax paid on purchases of inputs (VAT Credit) should not be included in the cost of purchases VAT credit which will be available in future on the goods lying in stock at inception of VAT scheme should be credited to the opening stock Account at the inception of the scheme itself. Payment of VAT should not be treated as an expense in the financial statements of the enterprise.

Benefits of VAT
1)

2)
3) 4) 5)

No Cascading Effect Coverage Revenue security Selectivity Co-ordination of VAT with direct taxation

COMPARITIVE STUDY OF VAT AND CST

KST VAT

Multiplicity of levies on the same tax base Complex structure Cascading Effect Higher tax rates No economic benefit to small industries

Multiplicity of levies on different tax base Simple to understand No Cascading Effect Lower Tax rates Economic benefit to small industries

VAT Revenue

VAT implementing states has shown an increase of 27.1 per cent during the first quarter of August 2006 fiscal year-on-year. The tax revenue of the VAT implementing states showed around 13.8 per cent increase in 2005-06 over tax revenue of 2004-05, which is higher than the compound annual growth rate of sales tax revenues of these states for last five years.

VAT IN OTHER COUNTRIES

ARGENTINA BRAZIL NEPAL CANNADA

VAT IN OTHER COUNTRIES

1. 2.

3.
4. 5. 6.

NAME OF COUNTRIES Sweden Poland United Kingdom Australia Canada China

VATE RATE IN % 25 20 17.5 8 6 17

In Brazil, in 1968, VAT revenue, as a percentage of total tax revenue was 51.03, while in 1985 it became 21.91, and in the period in between, it gradually fell. In comparison, income tax rose from 21.8 per cent in 1968 to 58.97 per cent in 1985.

MODEL VAT FOR INDIA

One Country One VAT CST must be abolished Only few Tax Rates Only Annual Returns Paperless Offices Free movement of goods All services must be taxed

UK VAT

REGISTRATION TAX RATES FILLING OF RETURNS

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