Prepared By: Abhinav Narayan S.

(1302-002) Akshay Bansal (1302-017) Arunav Chakraverty (1302-035) Ashish Mishra (1302-036) Erri Anvesh Reddy (1302-049) Prashant Mishra (1302-193)

A sales tax is a tax paid to a governing body for the sale of certain goods. How is it calculated ? The tax amount is usually calculated by applying a percentage rate to the taxable price of a sale.
E.g.. Say Sales tax = 10% Manufacturer purchases raw material from seller at $1.00 Now, he wants to sell it at $2.00 ant make a $1.00 profit He will have to sell it for $2.00+$0.20=$2.20 to the consumer.

Gross receipts tax Levied on all revenues of a business. This tax has been criticized for its "cascading" or "pyramiding" effect It does not include the following: Cash discounts Returns and allowances Transportation chargesseparately stated Trade-ins Finance and service charges Bad debts

Inland tax on the sale, or production for sale, of specific goods or a tax on a good produced for sale, or sold, within a country or licenses for specific activities. In common terminology, an excise Tax is distinguished from a sales tax in 3 ways: Narrow range of products . An excise is typically heavier, accounting for a higher fraction of the retail price of the targeted products An excise is typically a per unit tax, costing a specific unit of the item

Only on tangible personal property purchased by a resident of the assessing state for use, storage, or consumption in that state (not for resale), regardless of where the purchase took place. If a resident of a state makes a purchase within his home state, full sales tax is paid at the time of the transaction. The Use tax applies when a resident of the assessing state purchases an item that is not subject to his home state's sales tax.

Form of consumption tax From the perspective of the buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the value added to a product, material, or service, For Accounting purpose- on the Price of the good.

Similar to a sales tax or a VAT taxes intermediate and possibly capital goods Type of an Indirect tax Applicable to a production process or stage.

A significant increase in the price of goods , commodities or services, due to implementation of a complex and expensive tax system , thereby leading to multiple taxation on same commodity, end result of which is an ever increasing burden on consumers. Based on several sub-components: a) varying categorization b) varying tax slabs c) varying commercial perceptions

Tax burden from the stage of import to the stage of delivery has made the Indian products less competitive at international market. The purpose of Government to export goods and not taxes would not be met. Assesse may try to escape/ evade the tax liabilities as in total they are very high. Assesse find it difficult to comply with various laws with multiple rates, basis, elaborate procedures where cost of compliance is very high. Extra tax burden would be on the ultimate consumer as the taxes are passed on at every stages to end with the final consumer.

Meaning
Value Added Tax is a multi point sales tax with set off for tax paid on purchases. It is basically a tax on the value addition on the product.

Charged and collected by dealers on the price paid by the customer

Output VAT

Amount received by a seller as a percentage of the gross sale price of goods or services

Input VAT

Amount paid by a buyer as a percentage of the gross purchase price for goods or services used in production.

A trader registered for VAT effectively pays VAT only at one stage when he sells his goods.
This tax is the only amount, which has an effect on his selling price which includes VAT. The VAT that he has paid as a part of his purchase price is charged on him by his suppliers. This is not a cost to him because he gets it back by deducting it from tax on his sales (Output Tax). Therefore, VAT should have a minimum impact on his selling price.

(a) Input purchased within the month : Rs.1,00,000/(b) Output sold in the month : Rs. 2,00,000/(c) Input tax paid : Rs. 4,000/(d) Output tax payable : Rs. 20,000/(e) VAT payable during the month : Rs. 16,000/- after set-off/input tax credit

RECTIFICATION THROUGH VAT

In the prevailing sales tax structure, a multiplicity of taxes, such as turnover tax, surcharge on sales tax, additional surcharge, etc. Prices will in general fall Transparency will increase There will be higher revenue growth

1) Gross Product type (GVAT) - only purchase cost of raw materials is allowed as deduction from sales. No deduction is allowed in respect of capital expenditure Limitation: This type of VAT is that capital goods carry a heavier tax burden, as they are taxed twice. GVAT = C + I = W + P + D Where C=Consumption, I=Investment and W=Wages,P=Profits (after depreciation) and D=Depreciation

2)Income type vat(IVAT): here both purchase cost of raw materials & depreciation will be allowed as deduction from sales. IV A T=C-I-D=W+P (wages & profit) 3) Wages type Vat (WVAT) -It exempts investment, Profit & Depreciation from value added in producing the capital goods. Limitations: Labor alone has to bear the entire burden of tax.. WVAT= C-I-D-P=W (wages alone)

4) Consumption type (CVAT) - In this type of case all business purchase including capital items are taxed under VAT. CVAT=W+P+D+I (wages+profit+depreciation+investment)

Vat Rates in india

There are 5 basic rates of VAT, namely,0 percent,1 percent, 4 per cent and 12.5 per cent & 20 percent Zero Rate: Products on which a VAT is not levied. Eg: exported goods, Unprocessed Agricultural Goods ,donated goods sold by charity shops, equipment for the disabled, prescription medications, water and sewage services, books and financial services etc. One Percent Rate: Gold, Silver, Precious and Semiprecious Stones; Four Percent Rate: Basic Necessities, Capital Goods, Industrial and Agricultural Inputs, AED (Additional Duties of Excise) items like sugar, textiles and tobacco products.

12.5 Percent rate: All other normal products

20 percent Rate: Narcotics Mollasses

If you sell zero-rated goods or services, you need not pay VAT as VAT rate is 0% and you will be credited for the tax of raw materials. Dual Benefit But for exempt goods you need not pay VAT but you will not get any credit for the tax of raw materials Single benefit

1) Detailed Records 2) Refund of Tax 3) Functional Problems 4) No Credit for Tax paid on Interstate Purchases before 2005

Comprehensive value- added tax (VAT) on both Goods and

Services.

France was the first country to introduce this system in 1954.

194 Countries currently implementing GST with average rate

of around 15-18%.

Collected on value- added goods and services at each stage of

sale or purchase in the supply chain ( similar to VAT ).

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GST paid on the procurement of goods and services can be set off against that payable on the supply of goods or services. The end consumer has to bear this tax and GST is like a last-point retail tax .

Countries have a unified GST system . Brazil and Canada follow a dual system GST is levied by both federal and state or provincial governments.

In India, a dual GST is being proposed CGST and SGST .

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Main Objective - To remove the current complexity of

the Indian Taxation system.

Subsume many taxes like Excise Duty,Octroi,Luxury

Entertainment etc .. which are currently levied on goods

and services individually .

Dual GST : Central GST & State GST act in parallel. Destination based GST Fundamental Growth to the buying state as tax is paid to their government . Common Base, Classification & Forms Compulsorily to be levied by all states within a range ( Floor and Ceiling rate ) unlike VAT . Cross credit between CGST and SGST is not allowed . They stay on separate tracks and cannot be mixed.

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Impact on Prices of Goods and Services Price is expected to go down drastically in the long run . Certainty of implementation- Government is expected to implement it from April 2015. Applicability of both CGST and the SGST on all transactions Threshold Exemption available for GST Difficult to administer small traders with their accounts . The compliance cost and compliance effort saved for such small traders. Minimum threshold has been set by government ( Exact Rate not fixed yet )

Goods Vs. Services Lines between the taxation of Goods & Services is constantly blurring. Duality of Charge
Sr. No.
1. 2. 3. 4. 5.

Activity

Customs duty

Central / State Excise duty

Service tax

VAT / CST

Intellectual Property Services Import of Designs, Technical Know etc.. Work Contract Construction Services Manufacture of Products liable to State Excise

Widening of tax base. Positive impact on business community. Expectation of boosting the economy by 2%. Significant improvement of tax compliance. Higher threshold limit for small traders. Equitable distribution between manufacturing and services. Prices may fall in the long run.

Selective Approach
selected services are taxable

Negative List all services are taxable

116 Taxable Services

Taxable Services Exempt Services - Threshold Negative list + exempt

Total Service Sector (approx. 57% of GDP) (A)

40% remains in the tax net

40% attributable to the Informal sector (under threshold limit)

60% remains taxable

60% covered under the negative list, exemptions (20-25% of A)

Effective percentage of entire service sector that is covered under the tax net = 2025% (First Concept Paper) Estimated net revenue gain consequent to changes in the Union Budget 2012-13, relating to Indirect Taxes, estimated at Rs. 45,940 crore (Budget Speech 2012-13) Service tax changes Rs. 18,660 crore additional revenue

CST TO BE PHASED OUT

Service Tax Excise Duty on M&TP Addnl. Excise Duties

CVD SAD
Cesses and surcharges on goods and services

Taxes on lotteries, betting, gambling

Luxury Tax

Surcharges

Entertainment Tax (except levied by local bodies)

Central Excise Duty

Central

Cesses

Entry Tax (not Octroi)

State

VAT/Sales Tax

Dual GST