|




  
     

Purchase Price Rs.100

Tax paid during purchase Rs.10 (input Tax)
Selling Price Rs.150
Tax collected during resale Rs.15 (output tax)
Input tax credit (Tax paid during Rs.10
purchase)
VAT payable (output tax ± input Rs.5
tax)
Total Tax collected by govt. Rs.15
At the time of purchase by dealer Rs.10
At the time of resale by dealer Rs.5

  
 |

 
  
     
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  !  !

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% 

 /!0 Èill purchase goods from µA¶ @ Rs. 110, Èhich is inclusive of duty
of Rs. 10.
2. Since /!0 is going to get credit of duty of Rs. 10, he Èill not consider
this amount for his costing.
3. He Èill charge conversion charges of Rs. 40 and sell his goods at
Rs. 140.
4. He Èill charge 10% tax and raise invoice of Rs. 154 to /|0 (140 plus
tax @ 10%).
5. In the Invoice prepared by /!01 duty shoÈn Èill be Rs. 14. But, /!0 Èill
get credit of Rs. 10 paid on the raÈ material purchased by him from
/0
6. Thus, effective duty paid by /!0 Èill be only Rs. 4.
2 /|0 Èill get the goods at Rs. 154 and 34 at Rs. 165 Èhich he Èould
have got in absence of VAT.
8. Thus, in effect, /!0 has to pay duty only on value added by him.
  
 5 '
 

Proceeds to the Effect on prices Proceeds to govt
Govt to final Consumer
 mines copper and sells
it to, !  
Sales tax / VAT    
Total Cost to !  
! converts it into Èire  
and sells it to |at 100%
margin
Sales tax/ VAT    
Total Cost to | & 
| sells to , a retailer at 6 &
20% mark-up
Sales tax/ VAT 6 6 & &
Total Cost to 56 &
D sells to consumer at )57 &7
100 % markup
Sales tax/ VAT )& )& &7 &
Cost to Consumer 2 7
Total proceeds to Govt.  &7
  
 & '
 

Selling price from company to distributor
(pre-tax) 100 100
'
 8
    
Cost to distributor (gross) 110 110
†

 


  


 0 10
Distributor's margin 8% 8.8 8% 8
Selling price from distributor to retailer
( pre-tax) 118.8 108
'
 8
    7
Cost to retailer (gross) 118.8 118.8
†

 


  
   0 10.8
Retailer's margin 22% 26.14 22% 23.76
Sales price to customer (pre-tax) 144.94 131.76
'
 8
    57
cost to final customer 144.94 144.94
  
%  
# (
9" '
 

Selling price from company to distributor
(pre-tax) 100 100
'
 8
    
Cost to distributor (gross) 110 112.5
†

 


  


 0 12.5
Distributor's margin 8% 8.8 8% 8
Selling price from distributor to retailer
( pre-tax) 118.8 108
'
 8
    5
Cost to retailer (gross) 118.8 121.5
†

 


  
   0 13.5
Retailer's margin 22% 26.14 22% 23.76
Sales price to customer (pre-tax) 144.94 131.76
'
 8
    )&2
Cost to final customer 144.94 148.23
 
) :9".$;$#
#  '
 

Selling price from company to distributor
(pre-tax) 100 97.78
'
 8
    
Cost to distributor (gross) 110 110.00
Less: credits/setoff available to distributor 0 12.22
Distributor's margin 8% 8.8 8% 7.82
Selling price from distributor to retailer
(pre-tax) 118.8 105.6
'
 8
    5
Cost to retailer (gross) 118.8 118.80
Less: credits/setoff available to retailer 0 13.20
Retailer's margin 22% 26.14 22% 23.23
Sales price to customer (pre-tax) 144.94 128.84
'
 8
    )
cost to final customer 144.94 144.94
 Ò TES

‡ Examples 4, 5 & 6 shoÈ various possible

impact on final prices under VAT.

‡ Unlike in the theoretical examples, in India,

sales tax Èas generally charged only once
- at the time of sale to distributor.

‡ Since no credit Èas available for sales tax,

Distributors and Retailers used to include
sales tax in the cost of product, Èhile
computing mark-up.