A report on Value Added Tax
Introduction
Value Added Tax originated in France in 1954 and is under
implementation in more than hundred countries. Value Added Tax is
perceived by many as means to promote neutrality and uniformity of tax
burden and to provide incentives for increased productivity and
industrialization. The spread of VAT to the developed and the
developing countries alike certainly, makes for an interesting study.
Financial Times (London) too stressed the growing importance of VAT
when it observed in its centennial review “The economic and
technological changes of the second half of the century have made VAT
the quintessential modern tax”. It will not be an exaggeration if one
were to say that the emergence of the VAT as an important and elastic
source of revenue over the last four decades is unparalleled in the
history of taxation.
Despite the widespread proclamation of VAT, there have been
difficulties in implementing VAT in its true spirit like in the case
of Argentina, Brazil, Canada and India. VAT has been introduced in
more than 120 countries – developed, developing and those economies,
which are in transition. There have also been attempts to introduce
Value Added Tax in USA, which however has preferred to retain the
Retail Sales Tax system. Yet, those difficulties notwithstanding, it
can be said that Value Added Tax system definitely has its advantages
and is certainly recommended for most economies, particularly the
developing ones.
Definition
“Value Added Tax is a tax on the value added at each stage of
production and distribution process and can be aptly defined as one of
the forms of consumption taxation since the value added by a firm
represents the difference between its receipts and cost of purchased
inputs.”
Need for VAT
Value Added Tax is one of the most radical reforms that have been
proposed for the Indian economy after years of political and economic
debate. The reasons for advocating Value Added Tax is that it will
replace a complicated tax structure that will also do away with the
fraudulent practices. Following are some of the most important
benefits if VAT is introduced.
• VAT will encourage and result in a better-administered system that
will close avenues of tax evasion. The taxpayers will also be
compelled to keep proper records of their sales and purchases. VAT
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for the revenue loss for states from the change over. The center has
ensured that this will not be so and has assured compensation in case
of deficits. If VAT system is adopted there would be no exemptions or
incentives. This can adversely affect some business houses. To crown
all this there was also political opposition fearing disfavor of the
trading community and the resulting political fallout.
VAT – the way forward
In order to make the VAT a thorough success following could be few
suggestions.
* The deadline for all legislations and computerizations should be
same across the states.
* VAT should be implemented by all the states at the same time.
* Laws regarding VAT should be uniform across all the states and
there should be no disparity among the states.
* There should be a monitoring mechanism at the central to overlook
the new system.
* A lot of changes have to be made in ancillary legislation (income
tax, company law etc.) to ensure VAT compatibility.
Bibliography
1. www.ciionline.org
2. The Indian Express dt. June 24, 2004
3. The Economic Times dt. 10-03-04, 15-06-04, 18-06-04 & 27-07-04
4. Magazines & journals
The government of the United Kingdom, likewise the government of many other countries, raises money to spend on public services towards the tax system. The taxes are raised by two different levels of government, the HMRC, Her Majesty’s Revenue and Customs, and the local governments, as Barnet, Islington, Camden, Haringey, among others twenty nine local authorities in London, for instance. While the HMRC deduces taxes through Income tax, National Insurance contributions, VAT, corporation tax and fuel duty, local governments are responsible for business rates, council tax and other fees, such as on-street parking. In turn, the money deducted for tax purposes are applied to improve the health, education, social services and social security system. There are different types of taxes for different circumstances, for example, you have to earn above a certain limit to qualify for income tax and if you are self-employed you may be entitled to claim back much of your VAT (BBC, 2009).
Though the world economy as a whole has grown in recent years, a factor that is not taken into account is that the number “of the poor in the world has increased by 100 million” (Roy 3). In other words, the gap between rich and poor is widening. For India, this has startling implications. Though it is a nation that is developing in many ways, it also is a nation blessed with over one billion citizens, a population tally that continues to grow at a rapid rate. This population increase will greatly tax resources, which can create a setback in the development process. The tragedy, of course, is that the world is full of resources and wealth. In fact, Roy quotes a statistic showing that corporations, and not even just countries, represent 51 of the 100 largest economies in the world (Roy 3). For a country struggling to develop, such information is disheartening. However, there is also a more nefarious consequence of the growing disparity between rich and poor, and power and money being concentrated in the hands of multinational corporations: war is propagated in the name of resource acquisition, and corruption can reign as multinationals seek confederates in developing countries that will help companies drive through their plans, resulting in not only environmental destruction but also the subversion of democracy (Roy 3).
The New York Times. The New York Times Company, 04 May 1993. web, 10 October
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