Tax Reforms (Value Added Tax)

-


Value Added Tax 


The value added tax (VAT) is a method of tax collection as well as name of the state level tax (at present) in India. A tax collected at every stage of value addition, i.e. either by production or distribution is known as value added tax. The name itself suggests that this tax is collected on the value addition (i.e. production).

 

Production of goods or services is nothing but stages of the value addition where production of goods is done by the industrialists or manufacturers. But these goods require value addition by different service providers/ producers (the agents, the wholesalers and the retailers) before they reach the consumers. From the production to the level of sale, there are many points where value is added in all goods.

 

VAT method of tax collection is different from the non-VAT method in the sense that it is imposed and collected at different point of value addition chain, i.e. multi-point tax collection. That is why there is no chance of imposing tax upon tax which takes place in the non-VAT method-single point tax collection. That is why VAT does not have a ‘cascading effect’ on the prices of goods it does not increase inflation-and is therefore highly suitable for an economy like India where due to high level of poverty large number of people lack the market level purchasing capacity. It isa pro-poor tax system without being anti-rich because rich people do not suffer either.

 

Need Of VAT In India

 





Over the 150 nations in the world have implemented the VAT system of taxation regrading collecting their indirect taxes. There have been valid reasons why India should move towards the VAT method of tax collection. Some major reasons:


1. Due to single point tax collection, Indian indirect tax collection system was price increasing (having cascading effect on the price) which was highly detrimental to the poor masses. Implementation of VAT will improve the purchasing capacity and so the living standard of the poor people.


2. India is having a federal political system where side by side the central government, states have also been given power to impose taxes and collect them. At the central level, there has been uniformity of taxes for the economy. But there was no ‘uniformity’ at the state level taxes (i.e., state excise, sales tax, entertainment tax, etc.). this was detrimental to the development of a single market for Indian economy as a whole. India basically has may markets, but no Indian market as such. To bring in uniformity at the state-level taxes, VAT was a necessary step in India.


3. With the process of economic reforms, India moved towards the market economy. And for this, firstly India needed to have a single market. Without uniformity at the state level taxes (uniform VAT) this was not possible.


4. Indian federal design has resulted in economically weaker states and stronger centre. As VAT increases the total tax collection (experience of the world suggests so) it was fit to be implemented at the state level.


5. India has been a country of high-level tax evasion. By implementing VAT method of indirect tax collection, it becomes almost impossible to go for large scale tax evasion. To prove one’s level of value addition, the purchase invoice/receipt is a must which ultimately makes it cross-check the level of production and sale in the economy.

 

6. If some of the state level taxes (which are many) are converted into state VAT the complexity of taxation will also be minimised. And at the end, it is possible to merge some of the centre’s indirect taxes with it, i.e. arrival of the single VAT.

 

Keeping all these things in mind, India started tax reform (Chelliah Committee and Kelkar Committee) and certain level of success has been achieved in this area which can boost our motivation.


In the year 1996, the central government started collecting its excise duty on the VAT method and the tax was given a new name-the CENVAT.


The next proposal was to merge the states excise duty (imposed on intoxicants only) and their sales taxes into one tax-the state VAT or VAT. This could not take place due to the states lack of political will. Ultimately only sales taxes of the states were changed to be named VAT and was started to be collected on the basis of the VAT method (some states did not join it and some joined later). The experience has been encouraging.

 

Implementation Experience Of VAT

 





The implementation experience of VAT in India has been very encouraging – the new tax system has been received well by all the stakeholders, the transition being quite smooth. The revenue performance of VAT – implementing states/UTs has been encouraging the tax revenue registered, an increase of 13.8 per cent over the annual growth rate of the last five years. Only 8 states claimed for VAT compensation from the Centre in 2005-06 which came down to only 5 in the fiscal 2006-07.


 

Comments

Post a Comment

Popular posts from this blog

Understanding Feminism In India

-
Image
Feminism in India  It is a set of movements aimed at defining, establishing, and defending equal, political, economic social rights and equal opportunities for Indian women. Fight against culture specific issues within India’s patriarchal society, such as inheritance laws and practice of widow immolation known as ‘sati’.   Feminist Movement in India and Challenges   Sex Ratio   For Women in India, discrimination begins in the womb and at birth. In recent Times the situation is much better where the number of females per 1,000 males in India is 1,020 (2022). For this Government at the center and the state have been deliberately lay in implementation of the PC and PNDT Act (Preconception and Pre-Natal Diagnostic Techniques Act, 1994) that bans sex-selective abortions. Health and Survival   The Gender Gap Report 2011, shows that when it comes to women’s health and survival, India’s performance is at rock bottom (at 134th place among 135 Countries). India...
Read more

Economic Reforms (NEP 1991)

-
Image
Industrial Policy, 1991 It were the industrial policies of past which had shaped the nature and structure of the Indian economy. The need of the hour was to change the nature and structure of the economy by early 1990s. The GoI decided to change the very nature of the industrial policy which will automatically lead to change in the nature and scope of the economy. And here came the New Industrial Policy of 1991. With this policy the government kickstarted the very process of reform in the economy, that is why the policy is taken more as a process than a policy . Background: India was faced with severe balance of payment crisis by June 1991. Basically, in early 1990, there were inter-connected set of events, which were growing unfavourable for the Indian economy: (i). Due to the Gulf War (1990-91), the higher oil prices were fastly depleting India's Foreign reserves. (ii). Sharp decline in the private remittances from the overseas Indian workers in the wake of the Gulf War, speciall...
Read more

The Gig Economy in India

-
Image
The Gig Economy in India A Revolution in Work, Opportunities, and Challenges The gig economy in India is reshaping the employment landscape, offering unprecedented flexibility and opportunities while posing significant challenges for workers and policymakers. Characterized by short-term, flexible, and often platform-based jobs, the gig economy is a dynamic force driven by technology, changing work preferences, and economic necessities. This blog explores the growth, drivers, opportunities, challenges, and future of India’s gig economy, with a focus on its impact on workers, businesses, and society. What is the Gig Economy? The gig economy refers to a labor market where individuals take on temporary, flexible jobs or "gigs" instead of traditional, permanent employment. These gigs are often facilitated by digital platforms like Uber, Zomato, Swiggy, Ola, Urban Company, Upwork, and Freelancer, connecting workers with clients or businesses. Gig workers, also known as freelancers ...
Read more