A report on Value Added Tax Essay -- Economics

A report on Value Added Tax Introduction Value Added Tax originated in France in 1954 and is under implementation in more than hundred countries. Value Added Tax is perceived by many as means to promote neutrality and uniformity of tax burden and to provide incentives for increased productivity and industrialization. The spread of VAT to the developed and the developing countries alike certainly, makes for an interesting study. Financial Times (London) too stressed the growing importance of VAT when it observed in its centennial review â€Å"The economic and technological changes of the second half of the century have made VAT the quintessential modern tax†. It will not be an exaggeration if one were to say that the emergence of the VAT as an important and elastic source of revenue over the last four decades is unparalleled in the history of taxation. Despite the widespread proclamation of VAT, there have been difficulties in implementing VAT in its true spirit like in the case of Argentina, Brazil, Canada and India. VAT has been introduced in more than 120 countries – developed, developing and those economies, which are in transition. There have also been attempts to introduce Value Added Tax in USA, which however has preferred to retain the Retail Sales Tax system. Yet, those difficulties notwithstanding, it can be said that Value Added Tax system definitely has its advantages and is certainly recommended for most economies, particularly the developing ones. Definition â€Å"Value Added Tax is a tax on the value added at each stage of production and distribution process and can be aptly defined as one of the forms of consumption taxation since the value added by a firm represents the difference between its receipts and cost of purchased inputs.† Need for VAT Value Added Tax is one of the most radical reforms that have been proposed for the Indian economy after years of political and economic debate. The reasons for advocating Value Added Tax is that it will replace a complicated tax structure that will also do away with the fraudulent practices. Following are some of the most important benefits if VAT is introduced. †¢ VAT will encourage and result in a better-administered system that will close avenues of tax evasion. The taxpayers will also be compelled to keep proper records of their sales and purchases. VAT .. ...center for the revenue loss for states from the change over. The center has ensured that this will not be so and has assured compensation in case of deficits. If VAT system is adopted there would be no exemptions or incentives. This can adversely affect some business houses. To crown all this there was also political opposition fearing disfavor of the trading community and the resulting political fallout. VAT – the way forward In order to make the VAT a thorough success following could be few suggestions. * The deadline for all legislations and computerizations should be same across the states. * VAT should be implemented by all the states at the same time. * Laws regarding VAT should be uniform across all the states and there should be no disparity among the states. * There should be a monitoring mechanism at the central to overlook the new system. * A lot of changes have to be made in ancillary legislation (income tax, company law etc.) to ensure VAT compatibility. Bibliography 1. www.ciionline.org 2. The Indian Express dt. June 24, 2004 3. The Economic Times dt. 10-03-04, 15-06-04, 18-06-04 & 27-07-04 4. Magazines & journals