Monday, August 20, 2012

Advantages of Vale Added Tax (VAT)

1. Coverage:
It offers all the economic advantage of a tax that includes the entire retail price within its scope.Direct payment of tax is spread out over a large number of firms instead of being concentrated on particular groups such as wholesalers and retailers. If retailers do evade tax, tax will be lost only on their margins. One particular advantage is that of the widening of the tax base by bringing all transactions into tax net.

2. Revenue Security:
VAT represents an important tool against tax evasion and is superior to a business tax or a sales tax from the point of view of revenue security. If payment of tax is successfully avoided, at any particular stage of production and distribute on cycle nothing will be lost if the tax is picked up at a later stage. And even if it is not picked up subsequently, the Government would have at least collected the VAT paid at stage previous to that at which the tax is avoided. On the other hand if evasion takes place under sales tax, the Government looses all the taxes due on the product. A significant advantage of the value added tax in any country is the cross audit feature. Tax charged by one firm is reported as a deduction by the firms buying from it.

3. Selectivity:
VAT may be selectively applied to specific goods or business entities. In addition, VAT does not burden capital goods because the consumption type VAT provides a full credit for the tax included in purchase of capital goods. The credit does not subsidize the purchase of capital goods it simply eliminates the tax that has been imposed on them.

4. Co-ordination of VAT with direct taxes.
Most tax payers cheat on their sales, not to evade VAT but to evade personal and corporate income tax. Thus operations of an effective VAT, in implementation greatly help income tax administration and revenue collection. 

Other important advantages of VAT are:
1. Uniform rates of VAT will boost trade activities and will create a favorable atmosphere for the expansion and economy.

2. VAT Helps amassing tax revenues to finance the fund necessary for socio-economic growth of the economy. It has the in-built capacity to raise more tax revenues without altering the
existing tax structure and is yet able to expand the tax-base.

3. Since VAT is mostly based on 100% self-assessment, it will reduce the taxpayers’ hazards to visit tax offices frequently and lead to better tax compliance.

4. It became easier to give tax concessions to goods used by common man or goods used for manufacture of capital goods or exported goods.

5. Since there is no tax on tax, price escalation is avoided and will make prices more competitive with the foreign counterparts. This matter is very important in present era of globalization and economic liberalization.

6. The VAT will therefore help common people, traders, industrialists and also the Government. It is indeed a move towards better efficiency, healthy competition and fairness in the taxation


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