Page 235 - DCOM308_DCOM502_INDIRECT_TAX_LAWS

Indirect Tax Laws

Notes Under the CST Act, general and specific exemptions are granted on certain goods while VAT
does not permit such exemptions. Under the CST law, concessional rates are provided on certain
taxes. The VAT regime does away with such concessions as it would provide the full credit on
the tax that has been paid earlier.
Under VAT law, first, the dealer pays tax on the sale or purchase of goods. The subsequent dealer
pays tax on the portion of the value added upon such goods. Thus, the tax burden is shared
equally by the last dealer. To illustrate the whole procedure of VAT, we give you an example as
follows:
At the first point of sale, the value of goods is 100. The tax on this is 12.5%. Therefore, the net
VAT would be 12.5%. At the second change of sale, the sale value is 120 and the tax thereon is
15%. The tax that is to be paid at every point is 15%. The input tax is 15%. You will get a credit for
first change in sale of 2.5%, i.e. 15%–12.5%. Therefore, 2.5% will be the net rate. At the third
change of sale, the sale value is 150 and the tax on this is 18.75%. At the last stage, the tax paid
is 18.75%. The Input Tax is 18.75%. You get a credit for second change in sale, i.e., 18.75% – 15% =
3.75%. Therefore, 3.75% would be the net VAT. This means that VAT is paid in the last point tax
under the sale tax regime.
14.1.2 Features of Value Added Tax

Value Added Tax (VAT) is a multistage sales tax with credit for taxes paid on business purchases.
As the economy grew, business complexities led to the taxation structure towards its own peril.
This warranted a revision of the existing taxation. For achieving this, the government introduced
a single rate of excise (CENVAT) as a major step and bought in a fundamental rationalization in
the tax structure and levy.
25 states/ UTs had introduced VAT to replace the sales tax by December 31, 2005. Andaman and
Nicobar Islands and Lakshadweep do not have a sales tax. All the five BJP ruled states
Chhattisgarh, Jharkhand, Madhya Pradesh, Rajasthan, and Gujarat have introduced VAT to
replace the sales tax in April 1, 2006. Tamil Nadu adopted VAT in the year 2007 Jan 1. Uttar
Pradesh and union territory Puducherry have not yet accepted the VAT. Haryana was the first
state to introduce VAT in 2003.
VAT has the follwing features:
(i) VAT is imposed on goods and services at import stage, manufacturing, wholesale and retails
levels;
(ii) A uniform VAT rate of 15 percent is applicable for both goods and services;
(iii) 15 percent VAT is applicable for all business or industrial units with an annual turnover of
Taka 2 million and above;

(iv) Turnover tax at the rate of 4 percent is leviable where annual turnover is less than Taka
2 million;
(v) VAT is applicable to all domestic products and services with some exemptions;
(vi) VAT is payable at the time of supply of goods and services;

(vii) Tax paid on inputs is creditable/adjustable against output tax;
(viii) Export is exempt;
(ix) Cottage industries (defined as a unit with an annual turnover of less than Taka 2 million and
with a capital machinery valued up to Taka 3,00,000) are exempt from VAT;

(x) Tax returns are to be submitted on monthly or quarterly or half yearly basis as notified by the
Government.

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