vat presentation [2]

7/30/2019 Vat Presentation [2]

1/22

Timir Baran Chatterjee

Vice President & Company SecretaryDIC India Ltd.

Presentation for :XLRI,IIT,KGP,ICSI,ICAI,CII,BCCI,DIC,

TISCO,MITSUBISHIPTA

VALUE ADDED TAX

VALUE ADDED TAX

- ISSUES & CONCERNS-


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WHY THERE IS A CONCEPT OFVAT:

No way different from LST withrespect to the fundamentals

Method of levy differs in the twosystem

The traditional system of levying tax-FIRST POINT TAX - NEXT POINT TAX

LAST POINT TAX - MULTIPOINT TAX


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The Traditional System of Levying Tax

First Point Tax - Avoid cascading effect but Govt.loses its control on last point sales with added value -leakage of revenue due to various tax management in the

subsequent salesafter First Point.

Next Point Tax (especially for banded goods)-Burden of tax is shifted to the next point

Last Point Tax- Govt. gets revenue on valueaddition upto last point but loses its control on origin of

manufacture- possibility for leakage of revenue /

escaped taxation Not popular with Govt.


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The existing system of levying tax

Contd.

Multipoint Tax- The Govt. keeps control onoverall sales but cost increases due tocascading nature of taxation

VAT is a solution to overcome all the

above problems and acceptable bothto the Assessor (Govt.) andthe Assessee (Dealer)


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MEANING OF VAT

VAT in common man's languageis a tax levied on the value added to any

product or service AT EVERY STAGE

Destination based tax systemSales to Registered Dealer by a Registered

Dealer

Provision for input tax credit tax Credit paidat the previous point of purchase.

The tax paid by a registered dealer is netted.

Tax is ultimately borne by the consumer


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UNDERSTANDING VAT

How VAT would work is best

illustrated hereafter which

indicates that everybody becomes

happier under VAT regime with

multi-point taxation but with lesser

tax burden.


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Raw Material

Producer

Goods

Manufacturer

Wholesaler

Retailer

Happy

Consumer

Sale Rs 150Gross VAT Rs 15

Net VAT Rs 5(15-10)

Sale Rs 100(VAT Rs 10)

Sale Rs 180

Gross VAT Rs 18Net VAT Rs 3(18-15)

Sale Rs 200Gross VAT Rs 20

Net VAT Rs 2(20-18)

ASSUMINGA VATOF 10%


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TAX RATE UNDER VAT

essential commodities, capital goods, basic

inputs and declared goods >> 4%-PRINTING INK COVERED UNDER 4%

agricultural products and sea goods >> 0%

gold >> 1%

cigarettes, liquor, petrol, diesel >> 20%

Floor rate of 12.5% (Revenue Neutral Rate)


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VAT IS A SCIENTIFIC SYSTEM

OF CHARGING TAX Govt. keeps full control on all stages of value

addition

No escape from tax net

It sets up lamp posts all along the value chain,thus bringing to light the entire geography ofeconomic activity.

No Cascading effect and thereby reduces

overall cost

Reduction of Raw Material cost- sales tax is nomore an input cost to the manufacturer

Ultimate consumer is satisfied due to low cost


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ULTIMATE OBJECT OF VAT IS NOW

FULFILLED

MAKES INDIA

SINGLE

ECONOMYTRANSPARENCY

INCREASED

TAX BASE

NO

CASCADING

EFFECT

NEUTRALITY

IN

INDIRECT

TAXES

NO REVENUE

LEAKAGE

REWARDS

PRODUCTIVITY

COMPETITIVE

PRICESVAT

RESULTS


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PRE-REQUISITES FOR

EFFECTIVE VAT REGIME:India needs to take following steps to

introduce VAT without further delay-

Application of information technologyWide spread computerization

Bringing all registered dealers into tax net

Avoiding exemptions and incentivesGranting rebate on already paid tax

Phasing out of Central Sales Tax


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VAT: Issues and concerns:

Proposed VAT is not truly an ideal VAT

system of taxation since- No input Tax credit on Central Purchases of Raw

Materials and Capital goods is available

No input tax credit for Branch Transfer is available

( Credit available in excess of 4% ) CST would continue ; CST is an origin based tax system

Exemption/Remission will continue for CST

Transactions

Not withdrawal of other taxes like Entry Tax, Octroi,Service Tax etc and no input tax credit is available- Asper White Paper Entry Tax to be vatable.


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COMMERCIAL ISSUES TO

BE TACKLED BY THE

INDUSTRY AFTER

IMPLEMENTATION OF

PRESENT FORM OF VAT


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A. CONTINUTATION OF CST AFTER VATADOPTION IS A MAJOR ANOMALY- IMPACT

INTER STATE PURCHASES WOULD BE COSTLY-

MAJOR SUFFERER EASTERN & SOUTHERN BASED

INDUSTRIES BOTH IN TERMS OF PURCHASE AND

SALES [70% RAW MATERIALS ARE SOURCED

FROM OUTSIDE THE STATE] CUSTOMERS WOULD BE ASKING TO SET UP A LOCAL

DEPOT/BRANCH/DISTRIBUTOR- COST WOULD

INCREASE

COST MISMATCH BETWEEN DEVELOPED MARKET

AND UNDERDEVELOPED MARKET

UNFAVOURABLE PRICING EFFECT DUE TO COST

MISMATCH AND AVAILABILITY OF INCENTIVES

IT WILL LEAD TO UNEVEN COMPETITION


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B. NO VAT CREDIT IS AVAILABLE IN CASE

OF BRANCH TRANSFER- IMPACT

Companies having centralizedmanufacturing system and selling through

Depots/Branches would be highlyaffected.

Sales through outstation C & A systemwill also be affected since materialstransferred to C&A would be consideredas branch transfer


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A FEW TAX MANAGEMENTSOLUTIONS

SLOGAN IN A POSITIVE NOTE

ENHANCE LOCAL PURCHASE, INCREASE DIRECT

SALES LOCAL OR CENTRAL

SLOGAN IN A NEGATIVE NOTE

REDUCE CENTRAL PURCHASE, STOP BRANCH

TRANSFER AND AVOID SELLING THROUGHOUTSTATION DEPOTS/C & F AGENTS


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While framing ManagementObjective, a Company ought to

reckon that -Business is not solely guided

by Tax advantages;

Other Commercial issues areequally important.


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SOME ACTION PLANS

Analyze existing sources of Purchases Central and State

Explore possibilities to convert theexisting central purchases to localpurchases Ask supplier to open Branch,Depots or ask them to match the price

considering VAT impact.

Analyze existing sales through BranchTransfer


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SOME ACTION PLANScontd.

Explore the possibilities for direct salesto customers instead of selling throughoutstation Branches/Depots

Less dependence on Centralisedpurchase system- Units to buymaterials directly and from localsources

Need for re-alignment of productionfacilities to maximise VAT benefits (Incase of multi unit manufacturing

facilities)


20/22

SOME ACTION PLANS VAT Credit is available on Opening Stock on

1.4.2005- Keep Costing system ready tocalculate the LST included in the openingstock, finished goods and work-in- progress.Refund to be made in 6 monthly instalments

and to start after 3 months from the date offiling of the claim. Keep minimum stock as on31.3.2005 to minimize claim; Buying on 1.4.05would immediately allow credit

Make necessary Impact Analysis based onexisting system of Purchase and Sales-

(Local Purchase - VAT is available; CentralPurchase - No Vat is available; Branch

Transfer- No VAT credit is available)


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SOME ACTION PLANScontd.

Companies enjoying Remission / ExemptionScheme to re-work their Cash Flow andProfitability system considering that benefitsfor local purchases and sales may be

withdrawn in due course.- Benefits under CST would be pahsed out innext two years

VAT accounting and software system would bein place

Designing of VAT Invoice - Start Using TIN


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T H A N K Y O U

vat presentation [2]

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