The writer is biased towards proving that VAT is good. While this may be true for the society, the explanation is not good. The illustrations are confusing. Overall while VAT may have thumbs up , u will get thumbs down man...
RE:How VAT Works?
by Sphilip on May 13, 2005 11:44 AM Permalink
The examples are excellent, however has some typo/miscalculations.
Can some one show same example on how taxation work NOW and how it impacts/benefit State & Central govt ? This would be a good comparison on post and pre VAT era.
Under section 17 (1), if a dealer fails to file any return in time, the commissiner can pass an assessment to the best of his judgement without giving any notice or hearing. This is totally absured as a dealer may fail to fill reture becouse of illness or some other urgent work out of town. Like earlier saletax act, government can charge interest on amount due or on delay filing of return. We can not copy western and Chinies country in this section, because we have to be careful about the curruption level also in our country.
Petrol and Desiel prices are kept out of the net of vat. These products cost highest in mumbai out of 4 metros and cheapest in Delhi as per rates shown on TV. In mumbai, people could have found some relief but government was shrude enough while chosing items within vat or outside vat as per their convinenience of collecting tax, without taking into consideration of its effect on public. It is shocking thing to note that onion which is basic food even in villages in maharashtra attracts 12.5% tax. Even the Bhatttea stall bellow building staircase in Masjid and Fort area or in narrow lanes of suburbs, attract 10% vat tax on every tea or Vadapaw sold as an unregistered dealer.(Every unregistered vat dealer in restaurants industry has to pay 10% vat tax.).Thus every cutting tea sold for Rs. 2 attracts 20 paise vat taxand every vadapaw sold for Rs.4 attracts 40 paise vat tax.Even all raw materials used in preparing these tea and vadapaw are tax under vat laws.(Wheat powder, tea, edible oil are tax 4%) (Sugar is not mention in schedule os it is tax at 12.5 %). These tea and Vadapaws are basic lunch and dinner of many of our labours.
Vat tax on under garments such as under-wears, banians, bras etc including pajamas and kurtas which are basic necessity and essential items attract 4% tax whereas, wedding sarees are tax free. How fare is it justified taking into account that even villagers use these under garments.
Example B shown in the calcuklation of how a shop-keeper may overcharge the customer has a mis-calculation. The VAT shud have been calculated over 12120 which is the total SP and not the figure on which it has been calculated.
in the examples A and B (of how retailers can ivercharge customers) there is a mistake in the final figures. Instead of showing the difference in final figures of two examples of Rs 1688, the final figures shown are exactly the same.. i also got a bit confused with the examples of tax str for retailers, wholesalers etc.. overall a very very informative article.
Hi, The VAT calculation in "Example B" seems to be wrong. It should be calculated for 12,120 and not 13,620 as shown in the last three steps. If it is calculated for 12,120 then the total comes to 13,635 which is 1,688 lesser than "Example A".
In Example B i think Basic selling price should be Rs. 12120/- on which there will be VAT of 12.5% so that is = Rs 1515/- thus net selling price will be Rs. 13635/- only then there will be a differenc eof Rs . 1600+ in Example A & That in B
Total 10,100 Add 20 per cent profit margin 2,020 Total 12,120 Basic selling price (incorrect)13,620 Basic selling price (correct) 12,120 Add 12.5 per cent VAT 1,515
VAT inclusive selling price 13,635
Now the difference 15323 - 13635 shows that A has overcharged by 1688 which is correct..
The example indeed is very helpful. However, 1. how would we know if the vendor has already paid VAT or is going to pay it after he sells his inventories 2. why is the VAT calculated over handling and profit margins? Is this correct or we are increasing the profit margin by a couple of percentage points about the intended profit margin?
