What Is Value Added Tax (VAT)?
Value Added Tax is a consumption tax that is levied on a product whenever it is added to the price at every stage of the supply chain from production to sales. The VAT that the consumer pays is on the cost of the product, less than the price of the material used in the product that has already been taxed.
Scope of VAT:
Value Added Tax is usually expressed as a percentage of the total cost and increases government revenue without punishing success or wealth. VAT covers the supply of both goods and services (including imported) at a uniform rate of 15% unless subject to VAT exemption. Businesses with an annual turnover of less than Rs 7.5 lakh will be out of the VAT net.
Advantages of VAT:
- VAT offers more benefits than the national sales tax as :
- It is very easy to track.
- Exact tax is levied on every step of production.
- Furthermore, because VAT is only levied on every price increase, it is not a sale of a product itself due to which it ensures that no double tax has been levied on the same product.
Also Read: What is Withholding tax?
Impact of VAT on Improving Economy Documentation And Revenue Collection:
All commercial activities related to rallies, production, and distribution of goods and provision of services are brought under the tax net which is tolerated to the extent of default registration. As a result of documenting each body in the supply chain. People who are not registered in the chain are not in a position to claim or deduct the tax paid at the purchase level. VAT promotes financial documents using its built-in invoice-based credit mechanism. The tax invoice is a bloodline of documents related to VAT. VAT includes self-enforced features and business transaction documents through tax invoicing.