The Complete Book on VAT
Third Edition released on 1st September 2008
Third Edition released on 1st September 2008
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| VAT in Kerala VAT a modern method of imposing tax on sale or purchase of commodities and services have been successfully experimented by more than 130 countries in the World. The common belief is that France was the first country in the world to have adopted VAT system in 1954. A minority, consider Brazil to be first nation to have introduced VAT in 1960. In India, change over to VAT system suggested by Dr. Man Mohan Singh while he was the union finance minister in the annual budget during 1993-94. Our neighbors China, Pakistan and Srilanka implemented VAT long back. National Institute of Public Finance and Policy (NIPFP), New Delhi conducted studies on the system of VAT to be implemented in the country. An Empowered Committee consisting of the Finance Ministers of various states was formed to formulate the modalities of VAT in India. This committee chaired by Dr. Asim Das Gupta, Finance Minister of West Bengal came out with a white paper on the VAT in India, on January 17th 2005. The white paper detailed the general principles of VAT to be followed in the country. In India VAT would not be made applicable on services rendered and received. In tune with the guidelines of the empowered committee majority of the states including Kerala have enacted the VAT legislation suited for the respective states. Hariyana was the first Indian state to have implemented VAT. Reports indicate that Hariyana recorded a hike to the tune of 30% tax collection during the past 3 years. There are three different methods for imposing VAT (a) Subtraction Method In this method for calculating VAT, the expenses incurred for the manufacture and marketing of a commodity would be subtracted from the end price of the commodity. (b) Addition Method In this method for calculating VAT, the expenses incurred for the manufacture and marketing of a commodity would be added on. In calculating VAT, under this method expenses like wages, interest, rent and profit would taken into account. (c) Input Tax Credit Method It is an amended format of the Subtraction Method. This method has been followed by most of the countries in the world. In India, Input Tax Credit Method is to be followed for implementing VAT. This is because of the fact that Input Tax Credit Method is the best and the most, easy method in calculating VAT. Explanation: Let us assume that a dealer - Sundarraj Reddiar purchased umbrella from a manufacturer in the state for a price of Rupees 100 with 10% tax. Sundarraj paid Rupees 110 to the manufacturer for purchasing the umbrella. Later Sundarraj sold the umbrella to a retail dealer - Hari for a price of Rupees 150 with 10% tax. Here the retailer Hari purchased the umbrella by paying Rupees 165 to Sundarraj. Hari then sold the umbrella to a customer Prasad for a price of Rupees 200 and imposed tax @ of 10%. Prasad paid Rupees 220 to Hari for purchasing the umbrella. Here the tax paid by Sundarraj @ 10% over the price of Rupees 100 to the manufacturer – Rupees 10 is the Input Tax paid by Sundarraj. And the tax collected by him @ 10% over the price of Rupees 150 from Hari – Rupees 15 is the Out put Tax. The VAT to be remitted by Sundarraj to the Government in this business is Rupees 5. i.e. VAT = Input Tax – Out Put Tax. In this transaction, Sundarraj has got an Input Tax Credit of Rupees 10. POSITION IN KERALA The Kerala Legislative Assembly had unanimously passed the Kerala Value Added Tax Act, 2003 in February 2003. The Act was then forwarded to the President of India for his assent. As per legal opinion some necessary amendments were made to the Act. The Act received the assent of the President on 10th December 2004. And was published by Govt. of Kerala in extra ordinary Gazette No.2705 dated 27th December 2004. The Finance Minister Shri Vakkom B. Purushothaman has categorically stated that Kerala would implement VAT in the next financial year staring from 1st April 2005. The salient features of the Kerala Value Added Tax Act, 2003 are as follows. Registration – any dealer with an annual turn over of Rupees 2 lakh and above shall take registration under this Act – Section 15 (1). Explanation: Any dealer with an annual turn over of less that 2 lakh Rupees need not take registration under this Act. Such dealers may take registration according to their option. Input Tax Credit – Section 11 (1) of the Act provide for Input Tax Credit. Presumptive Tax – Section 6 (5) of the Act provide for payment of Presumptive Tax by certain category of dealers. Compounding Tax - Section 8 of the Act provide tax compounding to certain category of dealers. A registered dealer who had purchased taxable goods from a registered dealer in the state, if effects re sale of the goods or manufactures a taxable item and effects sale of such goods would be eligible to avail Input Tax Credit under Section 11 (1). However if the item so manufactured is a commodity included in the 4th Schedule of the Act, the dealer will not be eligible for Input tax Credit. Explanation: A dealer by name Natesan purchased Spirit and Molasses for manufacturing Foreign Liquor. Even though Natesan had paid Tax for the purchase of Spirit and Molasses, he would not be eligible for Input Tax Credit under section 11 (1) as the item he had manufactured – Foreign Liquor is an item listed under the 4th Schedule of the Act. All the listed in the 4th Schedule of the Act are commodities falling out VAT. The basic concept was that by the introduction of VAT all other taxes might be withdrawn. But the Central Sales Tax Act is to be in force. The Empowered Committee has suggested that CST might be withdrawn in a phased manner. In Kerala, the Kerala General Sales Tax Act (1963) has not been repealed. It is to be in force along side Kerala Value Added Tax Act 2003 for the time being. VAT is meant to cultivate a culture of self - assessment and to promote tax - abiding citizens. Considering the large number of doubts raised and clarification sought for by traders, accountants, lawyers, businessmen and auditors Keral Today.com has planned to organize and impart training to the needy at major cities in the state on the subject " VAT IN KERALA" – Law, Procedure & Accounts. * Author is the Law Officer of M/s Hindustan Latex Limited VAT IS NOT POLITICALLY NEUTRAL The big advantage claimed by VAT appears to be more fiction than real. It makes big inroads into States' financial autonomy and positions the Delhi regime at a far higher pedestal at a time when its patriotic credentials have turned questionable. VAT is opposed by Small and Medium Businessmen of India on instinct. Along with the free entry of FDI in retail trade, VAT will virtually eliminate them as a class. Typical of the petty bourgeoisie, they welcome globalisation on their terms. Working class parties professing People's Democratic Revolution cannot look at the introduction of VAT as a non-political event. It is strange that, the major left parties, CPI and CPI (M) are silent on VAT and see it as a pure administrative issue, to be decided by a committee headed by West Bengal Finance Minister. It will be quite in order, if the Left intervene in this late hour using its influence over UPA and differ VAT by another year on the grounds of seeking consensus with small business. And, Left should close its ranks with the small business, understand their apprehensions and be truly committed to the cause of Peoples' Democratic Revolution. XXXV/194, Automobile Road, Palarivattom, Kochi 682025, Kerala, India: TF: 0484-2344015 * The author is the former Chairman of Kerala State Industrial Development Corporation and Secretary Bureau of Public Enterprises, Govt. Of Kerala Introduction of State Value Added Taxation and Industrial/Trading Opportunities in Kerala Though Value added Tax was first introduced 50 years ago, it remained confined to a handful of countries until the late 1960s. Today it is a key source of Government revenue in more than 125 nations. About 70% of the world's population now covered by VAT. (The Modern VAT, International Monetary Fund, Washington DC, 2001). Government of India, in the post liberalization period (i.e., after 1990) seriously considered on simplification of federal Taxing system for smooth hassle-free Trade, Industrial and service activities at the global level. Due to the constitutional limitations the taxation of commodities and services in the Indian sub continent is made at the National and sub-national (States) levels simultaneously. Though at the National level, Excise duty is replaced with CENVAT from 1986 at the sub national level (State level). Sales tax is replace by VAT by majority states including Kerala with effect from 1-4-2005 onward only. All these transitions in taxation are for unified and simplified Goods and Service Tax Law, (GST) at National level/Sub national level commodity and services across the length and breath of the country. This tax vision need a clear federal consensus followed by constitutional amendments, policy changes and administrative re-engineering. Introduction of State VAT in India primarily meant To eliminate » Tax Pyramid effect (ie., tax becoming part of the cost of production/purchase value due to non-input Tax credit facility which culminates price rise.) » Tax cascading effect (ie.Tax on Tax which also culminates price rise.) » Tax loss to some industries / re-sellers (Even though sales Tax is indirect Tax, industries/re-sellers pay tax out of their profits) » Tax Evasion To create » Hassle free, effort less, cost less tax compliance procedure. » Global competitiveness among industrialists, re-sellers for Indian products/services. Transparency is pricing of taxing system so that the customers become real king in the market * Is a Senior Faculty in Accountancy & Management Centre For Taxation Studies Thiruvananthapuram TRADERS CAMPAIGN AGAINST VAT Campaign leaflets of the co-ordination committee of traders in Kerala allege that the Central Government is forcing on the country a global system of Value Added Tax (VAT) under the dictates of the World Trade Organisation. The traders are afraid that, with the introduction of VAT, global monopolies and Multinational Corporations will take over retail trade in the country. These fears are not entirely unfounded, especially in the context of the speculated permission for 100 percent FDI in retail trade. VAT aims at the unification of the national market, by rationalising and simplifying the national tax regime. Local traders and small businessmen, as well as, small and traditional industries will face stifling competition from large global players, once these natural barriers of taxation get demolished. Present system of indirect taxation, evolved over the past half a century, has its own logic, and represents a sort of blend of conflicting interests in the country: economic, political and cultural. It has helped to integrate the national market to a desirable or tolerable level, but offers considerable resistance to import trade, which is sought to be removed by blocking the constitutional powers of State Governments, at a time when more powers to the states and democratic decentralisation are the need of the hour. VAT is therefor counter revolutionary and unconstitutional, as alleged by Ashok Mitra, a former Finace Minister of West Bengal, in his PIL filed with the Kolkata High Court. Mindless and rude attempts at market unification by reform enthusiasts, in the name of economic rationale or efficiency, are resisted even in European Union, where workers, trade unions and the left in general. had joined hands with small business. In sharp contrast, the left in India, led by CPI(M) and its Finance Minister in West Bengal, lead the crusade for market unification, on behalf of the reformers. Empowered committee of finance ministers is an extra-constitutional entity and its leftist Chairman is a real anachronism. VAT will prove to be too complicated a system for India's political economy which is dominated by informal sector. The virtue of transparency claimed by VAT in the West, is really that of its developed economy dominated by its formal sector. It will be yet another quixotic reform: by now, we have seen several such, all falling by the way side, and inflicting heavy costs to the national economy. 30.03.2005- K Vijayachandran (Former Chairman of Kerala State Development Corporation) Download VAT rules STATTUTORY WARNING The Kerala Value Added Tax Forms and The Kerala Value Added Tax Rules are posted here under. These forms and Rules are subject to change, amendment and final approval by the Government. KeralToday.Com is not resposnible for any changes and updation by the Government. This is the skelton form of the forms and rules as prepared and submitted by the resepective authorities for approval by the Government. Sd/- Managing Editor KeralToday.Com KERALA VALUE ADDED TAX RULES, 2005 [ Download the PDF file ] THE KERALA VALUE ADDED TAX RULES,2005 FORMS [ Download the PDF file ] Download VAT Tax Act & Finance Act STATTUTORY WARNING The Kerala Value Added Tax Act 2003 as passed by the Kerala Legislature is included hereunder. The amendments made out to the original act through the Kerala Finance Act 2005 is also included here alongwith the schedules to the Kerala Value Added Tax Act with HSN Code (Harmonised System of Nomenclature) of the commodities. Keraltoday.com is not responsible for any amendments, changes in the text included hereunder.. Sd/- Managing Editor KeralToday.Com Kerala Value Added Tax Act 2003 [Download the PDF file ] Kerala Finance Act 2005 [ Download the PDF file ] |
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