Business Taxation

Reasons for the preference of VAT over Sales Tax

While theoretically the amount of revenue collected through VAT is equivalent to sales tax collections at a similar rate, in practice VAT is likely to generate more revenue for government than sales tax since it is administered on various stages on the production — distribution chain. With sales tax, if final sales are not covered by the tax system e.g. due to difficulty of covering all the retailers, particular commodities may not yield any tax.   However, with VAT some revenue would have been collected through taxation of earlier transactions, even if final retailers evade the tax net.

There is also in-built pressure for compliance and auditing under VAT since it will be in the interest of all who pay taxes to ensure that their eligibility for tax credits can be demonstrated.… Read the rest

Abey Francis

Introduction to Value Added Tax (VAT)

Value Added Tax or VAT is a broad-based commodity tax that is levied at multiple stages of production. The concept is akin to excise duty paid by the manufacturer who, in turn, claims a credit on input taxes paid. Excise duty is on manufacture, while VAT is on sale and both work in the same manner, according to the white paper on VAT released by finance minister Chidambaram. The document was drawn up after all states, barring UP, were prepared to implement VAT from April.   It is usually intended to be a tax on consumption, hence the provision of a mechanism enabling producers to offset the tax they have paid on their inputs against that charged on their sales of goods and services.  … Read the rest

Abey Francis

Nature and Evaluation of Service Tax

Nature of service tax

As per section 65 (95) of finance act , 1994   ,’sevice tax ‘ means tax leviable under the provision. Section 66 of Finance Act, 1994 is the charing section   of service tax. Section 66 provides that there shall be levied a tax (service tax) @12% of the value of taxable service referred to in various clauses of section 65(105).It will be collected in a manner as may be prescribed. Though the tariff rate is 12%, the effective rate is 10% w.e.f 24-2-2009.Thus; total service tax payable is 10.30%w.e.f.24-2-2009.

In respect of each type of  service , it is necessary to determine two things namely

(a) Taxable Service and

(b) Value of taxable service.… Read the rest

Abey Francis

Features of Service Tax

Service tax is a tax levied by the government on service providers on certain service transactions, but is actually borne by the customers. It is categorized under Indirect Tax and came into existence under the Finance Act, 1994. The salient features of levy of service tax are:

1.   Scope: It is leviable on taxable services ‘provided’ or ‘to   be provided’ by   a service provider. The services ‘to be provided’ in future are taxed only if payment in its respect is received in advance.

Two separate persons required   Payment to employees not covered: For   charge of service  tax, it is necessary that the service provider and service recipient should be two separate persons acting  on ‘principal to principal basis’.… Read the rest

Abey Francis

Introduction to Service Tax

Service tax is a tax on service. This is not tax on profession, trade. Calling or employment but is in respect of service rendered . If there is no service, there is no tax. As per Webster’s Concise Dictionary ‘service’ means a useful result or product of labor, which is not a tangible commodity.

Thus basically service is a value addition that can be perceived but cannot be seen, as it’s tangible. However, usage of some goods during the course of rendering the service would not mean that there is no ‘service’ .It is the predominant factor in each case, which is to be studied to arrive at a conclusion.… Read the rest

Abey Francis