difference between vat & sales tax

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Difference Between VAT & Sales Tax in

IndiaValue added tax and sales tax are a source of revenue for India's government.

The purpose of a taxation system is to enable the state treasury of a country to provide basicservices and certain amenities to its people. India, as a nation, has a well-organized tax structurewhich is managed by two federal bodies: the Central and State Governments. Taxes are

provisioned and implemented as per the Constitution of India, with the main being Customs

Duties, Income Tax, State Excise, Stamp Duty, Service Tax, Entertainment Tax, Sales Tax andVAT (value added tax). VAT and sales tax are primarily levied as a source of revenue for the

government.

1. Characteristicso VAT is an indirect tax that is imposed on each stage of production of an item. It is reflected in the

final price of an item, which is usually more than its cost of production.

Sales tax is a direct tax that is levied on a the price of a finished product, or service, and imposed

on a buyer.

2. Mechanismo VAT is calculated by subtracting the cost of output from the value of output. This can be written

as: VAT = Value of Output -- Cost of Output.

VAT can also be calculated by subtracting the input tax from the output tax, or VAT = Output

Tax -- Input Tax.

Sales tax is calculated by multiplying the current tax rate with the cost of an item, or Sales Tax =Tax Rate x Cost of an Item.

3. Typeso India's main types of sales tax are retail sales tax, luxury or selective sales tax, general sales tax,

gross income tax and gross receipts tax.According to James M. Bickley in the book "Value Added Tax," the main types of VAT include

consumption VAT, gross product VAT and income VAT.

4. Benefitso According to Alan S. Blinder in the book "The Economics of Public Finance," sales taxes are easy

to administer, convenient to pay, preserve incentives, reach the fluid population (tourists,

commuters and others on the move who typically evade income tax and other direct taxes due to

their transient state), harmonize fiscal objectives by controlling extravagance to a certain degree,are correlated with progressive income tax and contribute to the government."

According to Dinesh Maidasani in the book "Straight to the Point - Tally 8.1," the VAT is a

fairly straight forward tax that was implemented to reduce the complexities associated with thesales tax system. VAT is transparent, simple, flexible, equitable, fair and provides some revenueto India's government as compared to sales tax.

5. Drawbackso According to Blinder, sales taxes are regressive as they tend to burden poorer and larger families

more heavily than richer and smaller families; and heighten deflation and depression in periods

of financial crisis and unemployment.


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VAT is often difficult to administer from business and administrative perspectives; and has a

higher negative impact on labor intensive businesses as compared to capital intensive businesses.

Main differences between VAT and the existing Sales Tax.

3.1 The current Sales Tax is not applicable to all goods and services. For example,

raw materials purchased for manufacturing goods in Botswana are not subject to tax,

nor are many food items and most building materials. Similarly, some services are

excluded from the scope of the tax - construction services and bar/restaurant services,

for example. VAT will apply to virtually all goods and services.

3.2 Most local enterprises pay Sales Tax at the time of importation. This tax is then

recovered, like any other business expense, through the prices fixed by businesses for

the goods and services they sell. At present, businesses are not required to issue

special invoices or to identify the sales tax paid or payable on invoices or till slips.

Enterprises engaged in manufacturing activities in Botswana with a turnover above

P75,000 per annum are required to register for sales tax and must charge and account

for 10% sales tax on all sales. These manufacturing enterprises are exempt from Sales

Tax on their main raw material purchases.

3.3 For those services which are covered by Sales Tax, there is no registration

threshold. Therefore, all enterprises have to collect and account for 10% tax on their

sales. Moreover, service providers do not qualify for any relief in respect of sales tax

paid on any inputs.


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3.4 With VAT, all enterprises making taxable supplies above a value of P250,000 per

annum must register and are therefore obliged to apply VAT on all sales of taxable

supplies. This means that wholesalers and retailers will be required to register if they

have a turnover of more then P250,000 per annum. On the other hand, small service

providers will drop out of the tax net. However, the net effect of the change from

Sales Tax to VAT should be a significant increase in the taxpayer base.

3.5 Under Sales Tax, most imports are assessed for tax at the time of importation and

no further liability arises as the goods go through wholesalers and retailers to final

consumers. Under VAT, however, all imports will be assessed for VAT at the time of

importation and the VAT payable on imports will be allowed as a deduction against

the output tax charged on sales made by importers who are registered for VAT

purposes.

3.6 As the VAT will apply all the way through from importation/production to the

final sale to consumer, VAT will generally apply to the full price payable byconsumers. This should mean a significantly improved value base compared to the

Sales Tax which applies tax only to the value of imports or the ex-factory value of

goods.

Difference between Value Added Tax(VAT) and Sales Tax

Often referred to as the "goods and service tax", the Value Added Tax is

distinctly different from the sales tax levied on exchanges. The Value Added

Tax is a form of indirect tax that is imposed at different stages of production

on goods and services. VAT is levied on the import goods as well and the same


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rate is maintained as that of the local produce. Most of the European and non-

European countries have adopted this system of taxation. The transparent and

neutral nature of taxation has prompted VAT to emerge as one of the robust

revenue raisers in these countries.

Sales tax, as compared to VAT is the percentage of revenue imposed on the

retail sale of goods. Unlike VAT, sales tax is levied on the total value of goods

and services purchased.

The value added tax system, unlike the conventional sales tax system,

efficiently addresses the problems of cascading and input tax credit that

causes an automatic hike in the consumer price level. The incidence of

cascading is avoided in VAT as the tax is imposed on the value addition at

every stage of production. The final consumers are the ultimate bearers of the

burden. This indirect yet coherent form of taxation involves transparency and

is therefore easily comprehensible. Understanding the differences and details

of these two different approach can be challenging. You may requirehelp

with taxesfrom accountants or tax professionals.

The economic effect of VAT falls on the final prices of the goods and services

while sales tax relies on the final sale to the customers. The value added tax

system requires an effective accounting. To deal with this disadvantage, the

same tax is charged to each member involved in the production of the goods

and services. The implementation of the tax remains indifferent to the

position of the member in the production cycle or its position with respect tothe customers.

The system of taxation under VAT is also successful in avoiding tax evasions

that is frequent in sales tax. Sales tax is often considered a burden if the
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percentage charged goes beyond 10% and is subjected to evasion by the

consumers who engage in buying products through the internet and other

activities such as buying at wholesale or through an employer. Although tax

evasion is not possible in VAT, it is subjected to other fraudulent practicessuch as carousel fraud. This is one of the prominent practices of theft of the

value added tax. It is prevalent in the nations where the movement of goods

between jurisdictions is exempt from VAT. The fraudster is often found

levying VAT on products and evading its payment to the government. Such

practices are a heavy loss of tax incomes for the governments.

VAT is one of the newest instruments of the global economy and is widely

accepted and implemented in most of the nations. However, VAT poses

constraints in developing countries such as India. The predominance of low

per capita income in these nations poses a difficulty for the governments to

earn revenue through income tax. As compared to VAT, sales tax is a major

revenue earner for the regional governments in such countries.

Value Added Tax

Introduction


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Tax on sale within the State is a State subject. Over the period, many distortions had come in taxation due to unhealthy com

by giving sales tax incentives and tax rate war started to attract more revenue to State. Many steps were taken to remove

rationalise tax structure since 1999. It was decided to introduce uniform State Level VAT. Introduction of VAT is difficult in I

State Subject and sales tax on sales within the State can be levied only by respective State Governments. Even in respect

(CST), though the tax is levied under Central Act, the CST is collected in the State from which goods are sold, i.e. originat in

collected is retained by that State only. The CST amount never goes to Union Government. After lot of persuasion by CentrStates ultimately agreed to introduce State Level sales tax VAT at the conference of Chief Ministers of all States at Delhi in

high power Committee (termed as Empowered Committee) consisting of senior representatives of all 29 States was constit

Chairmanship of Dr. Asim Dasgupta, Finance Minister, West Bengal. Introduction of VAT was delayed on several occasion

have agreed to introduce VAT w.e.f. 1-4-2005. A White Paper was released by Dr. Asim Dasgupta, Chairman of Empower

Paper is a policy document indicating basic policies of State Sales Tax VAT. Haryana was the only State to introduce VAT

introduced VAT (though in diluted form) w.e.f. 1-4-2005. These include Assam, Andhra Pradesh, Bihar, Delhi, Goa, Karnata

Bengal. States ruled by BJP like Gujarat, Chhatisgarh, Jharkhand, Madhya Pradesh and Rajasthan have not introduced VA

and Uttaranchal also have not introduced VAT till May 2005. It is expected that they will introduce VAT in due course.

1.1 Separate law for each States :

Each State has made changes as per their needs. Though basic concepts are same in VAT Acts of all States, provisions in

capital goods, credit when goods are sold inter-state are not uniform. Even definitions of terms like business, sale, sale petc. are not uniform. Schedules indicating tax rates on various articles are also not uniform, though broadly, the schedules a

1.2 Possible loss of revenue to States :

State Governments are worried that introduction of sales tax VAT may lead to loss of revenue to them. Central Governmen

Governments upto 100% of loss in first year, 75% of loss of revenue in second year and 50% of loss of revenue in the third

finalised and provision has been made in Finance Budget of Union Government for 2005-06.

2. Basic Concept of VAT VAT works on the principle that when raw material passes through various manufacturing stages

various distribution stages, tax should be levied on the Value Added at each stage and not on the gross sales price. This e

taxed again and again and there is no cascading effect. In simple terms, value added means difference between selling pr

cascading effect of a tax. Basically, VAT is multi-point tax, with provision for granting set off (credit) of the tax paid at the ea

when goods are sold. This process continues till goods are finally consumed. Hence, VAT is termed as consumption type

credit system.

2.1 Meaning of cascading effect of tax :

Generally, any tax is related to selling price of product. In modern production technology, raw material passes through vario

ultimate stage. If a tax is based on selling price of a product, the tax burden goes on increasing as raw material and final pr

example, let us assume that tax on a product is 10% of selling price. Manufacturer A supplies his output to B at Rs. 100.

inclusive of tax @ 10%. He carries out further processing and sells his output to C at Rs. 150. While calculating his cost,B

materials as Rs. 110 and added Rs. 40 as his conversion charges. While selling product to C, B will charge tax again @ 10

(150+10% tax). In fact, value added by B is only Rs. 40 (150110), tax on which would have been only Rs. 4, while the tax

and/or sales continue, each subsequent purchaser has to pay tax again and again on the material which has already suffer

called cascading effect.

2.2 Disadvantages of cascading effect of taxes :A tax purely based on selling price of a product has cascading effect, which has the following disadvantages :

Computation of Exact Tax Content was Difficult :

It becomes very difficult to know the real tax content in the price of a product, as a product passes through various stages a

particularly important for granting Export incentives or for fixing regulatory prices. Varying Tax Burden - Tax burden on any

the number of stages through which it passes in the chain from first producer to the ultimate consumer.


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Discourages Ancillarisation :

Ancillarisation means getting most of the parts/components manufactured from outside and making final assembly. It is com

automobile, machinery etc.) to get the parts manufactured from outside and make final assembly in his plant. If a componen

However, if the same component is manufactured inside the factory, no tax would be payable. Thus, manufacturers are tem

instead of developing ancillary units for supply of the same. This is against the national policy, because it discourages grow

concentration of economic power.

Concessions on basis of END use is not possible :

Same article may be used for various purposes e.g. Copper may be used for utensils, electric cables or air conditioners. Go

burden depending on use. However, this is not possible as when Copper is cleared from factory, its final use cannot be kno

Though final products which are exported, are exempt from tax, there is no mechanism to grant rebate of tax paid at the ea

that as per WTO (World Trade Organisation) stipulations, exports can be made free of domestic taxes, but export incentive

2.3 VAT avoids cascading effect of tax :

System of VAT works on tax credit method. In Tax Credit Method of VAT, the tax is levied on full sale price, but credit is giv

effectively, tax is levied only on Value Added. Most of the countries have adopted tax credit method for implementation of

out as follows under VAT system. B will purchase goods from A @ Rs. 110, which is inclusive of duty of Rs. 10. Since B

will not consider this amount for his costing. He will charge conversion charges of Rs. 40.00 and sell his goods at Rs. 140. Rs. 154.00 to C. (140 plus tax @ 10%). In the Invoice prepared by B, the duty shown will be Rs. 14. However, B will get

purchased by him from A. Thus, effective duty paid by B will be only Rs. 4. C will get the goods at Rs. 154 and not at Rs

of VAT. Thus, in effect, B has to pay duty only on value added by him. Following example will illustrate the tax credit meth

Transaction without VAT

Details A B A

Purchases - 110 -

Value Added 100 40 100

SubTotal 100 150 100

Add Tax 10% 10 15 10

Total 110 165 110

Note - B is purchasing goods from A. In second case, his purchase price is Rs 100/ - as he is entitled to VAT credit of

invoice shows tax paid as Rs 14. However, since he has got credit of Rs 10/-, effectively is paying only Rs 4/- as tax, wh

added by him.

Simply put, value added is the difference between selling price and the purchase price.2.4 Advantages of Stat

follows, as enumerated in para 2.20 of White Paper on State-Level VAT:

Rationalisation of tax burden, which is expected to bring down price level.

Unhealthy tax-rate war among States.

Trade diversion among States, which affects all States.

Simplicity and transparency.

3.Highlights of State Sales tax VAT

The highlights are as follows -

Tax Credit :

Manufacturer will be entitled to credit of tax paid on inputs used by him in manufacture. A trader (dealer) will be entitled

purchased for re-sale [para 2.3 of White Paper on State-Level VAT). No credit is available in case of inter-state purchas


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Credit of tax paid on capital goods :

Credit will be available of tax paid on capital goods purchased within the State. Credit will be available only in respect of

processing. The credit will be spread over three financial years and not in first year itsel f. There will be a negative list of

State-Level VAT) States have deviated from these provisions. Some States allow credit at one go while some allow ove

Instant credit :

Credit will be available as soon as inputs are purchased. It is not necessary to wait till these are utilised or sold [para 2 .3

No credit of CST paid : Credit of Central Sales Tax (CST) paid on inputs and capital goods purchased from othe

of White Paper on State-Level VAT).

Transitional Credit of stock as on 1-4-2005 :

Input tax as already paid on goods lying in stock as on 1-4-2005 (which are purchased on or after 1-4-2004) will be avai

will have to be submitted to sales tax authorities. This credit will be available over a period of six months after an interva

2.7 of White Paper on State-Level VAT). States have deviated from these provisions.

Very few sales tax forms :

Most of present sales tax forms will disappear. [para 2.14 of White Paper on State-Level VAT) However, forms relating tCST Act will continue.

One to one correlation not required :

VAT does not require one to one i.e. Bill to Bill correlation between input and output. Credit is available as soon as input

can be utilised for payment of VAT on any final product. It is not necessary to wait till the input is actually consumed/sold

3.1 Tax rates :

Ideally, VAT should have only one rate. Though this is not possible, it is certain that there should be minimum varieties o

proposed [para 2.18 and 2.19 of White Paper on State-Level VAT)-

0% on natural and un-processed produces in unorganised sector, goods having social implications and items w

newspapers, national flag). This will contain 46 commodities, out of which 10 will be chosen by individual State

Other commodities will be common for all States.

No VAT on AED items (textile, sugar and tobacco] in first year. Position will be reviewed later.

1% floor rate for gold and silver ornaments, precious and semi-precious stones.

4% for goods of basic necessities (including medicines and drugs), all industrial and agricultural inputs, declare

of about 270 commodities.

12.5% RNR (Revenue Neutral Rate) on other goods.

Aviation turbine fuel (ATF) and petroleum products (petrol, diesel and motor spirit) will be out of VAT regime. L

taxed at a higher rate. These will have uniform floor rates for all States. Tax paid on these will not be eligible fo

Subsequently, some changes have been made in April 2005. For example, specified life saving medicines have been ex

all States follow this pattern, but still there are many variations.

3.2 Concession for small dealers :

VAT will be payable only by those dealers whose turnover exceeds Rs 5 lakhs per annum. They can register on

exceeding 5 lakhs should register within 30 days from the date of liability to get registered [para 2.9 of White Pa

Karnataka, the limit is only Rs two lakhs. Most of States have kept the limit as Rs five lakhs.

Composition scheme for dealers with turnover upto Rs. 50 lakhs :

Small dealers having gross turnover exceeding Rs. 5 lakhs but less than Rs. 50 lakhs have option of composition schem

percentage of gross turnover. They will not be entitled to any input tax credit [para 2.9 of White Paper on State-Level VA


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prescribed in West Bengal VAT Act, AP VAT Act, Delhi VAT Act and Kerala VAT Act. In case of Karnataka, composition

whose turnover in a period of four consecutive quarters does not exceed Rs 15 lakhs. In Maharashtra, tax payable unde

between value of turnover of sales and value of turnover of purchases including tax (other than excluded goods) (in sho

Second hand car dealer is required to pay sales tax @ 4%. In case of works contract, tax can be paid @ 8% of total con

towards sub-contracts to the sub-contractors. Dealers who make inter-state purchases are not eligible for the compositio

law of almost all States. The scheme is optional. They can opt to pay normal VAT and avail credit of input tax.

3.3 Policy about turnover tax, surcharge, additional tax etc. imposed by State Governments :

Those taxes on sale will go. However, Octroi and Entry tax (which is in lieu of octroi) will continue. Other type of Entry T

made Vatable [para 2.16 of White Paper on State-Level VAT) .

3.4 Non-availability of input credit in certain cases :

Credit of tax paid on inputs will be denied in following situations - No credit if final product is exempt - Credit of tax paid

final products. Thus, when final product is exempt from tax, credit will not be availed. If availed, it will have to be reverse

No credit if output goods are stock transferred to another State :

If the final products are transferred to another State as stock transfer or branch transfer, input credit availed will have to

excess of 4%. In other words, in case of goods sent on stock transfer/branch transfer out of State, 4% tax on inputs will is 12.5%, credit of 8.5% is available. If tax paid on inputs is 4%, no credit is available. Thus, the VAT as introduced is St

No input credit in certain cases :

In following cases, the dealer is not entitled to input credit - (a) Inputs used in exempted final products (b) Final product

lost/damaged/stolen before use. If credit was availed, it will have to be reversed.

No credit on certain purchases :

Generally, in following cases, credit is not available(a) Purchase of automobiles (except in case of purchase of autom

(b) fuel. There are variations between provisions of various States.

Zero rated sale :

Certain sales are zero rated i.e. tax is not payable on final product in certain specified circumstances. In such cases, crcredit will not have to be reversed. Distinction between zero rated sale and exempt sale is that in case of zero rated s

inputs, while in case of exempt goods, credit of tax paid on inputs is not available.

As per para 2.5 of White Paper on State-Level VAT, export sales are zero rated, i.e. though sales tax is not paya

available of tax paid on inputs. In respect of sale to EOU/SEZ, there will be either exemption of input tax or tax p

three months.If supplies to EOU/SEZ are exempt from sales tax, then the question will arise whether these are zero ra

3.5 Credit of duty on capital goods :

Credit of capital goods is available. In West Bengal and Kerala, it is available in 36 monthly instalments. In Karnataka, it

value of capital goods should be minimum Rs 10 lakhs. Capital goods of value less than Rs 10 lakhs will be inputs and

3.6 Procedural provisions :

General procedural provisions are as follows -

Tax Identification Number :

A system of audit checks will have to be established to keep check on bogus invoices. One essential requirement is to g

registered dealers, so that a check is maintained that (a) The tax as shown in the invoice has indeed been paid (b) Ther

invoice. TIN will have to be indicated on each invoice issued. It will be a 11 digit numerical code. First two digits will indic

on State-Level VAT) . Thus, State level computer network with check based on TIN will be established. Otherwise, misu


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Invoice based credit :

Tax credit will be given on basis of document, which will be a Tax Invoice, cash memo or bill. Such invoice can be issu

liable to pay sales tax. The invoice should be serially numbered and duly signed, containing prescribed details. The tax

Invoice. The dealer should keep counterfoil/duplicate of such invoice duly signed and dated [para 2.8 of White Paper on

manufacturer, invoice issued under Central Excise Rules should serve purpose of VAT also, if the invoice contains requ

Debit note and credit note :

If sale price is increased/reduced subsequent to sale, the transaction will be recorded through proper debit/credit note. T

available to him accordingly.

3.7 Provisions of assessment :

Dealer is required to assess his tax and pay himself. It will be basically self assessment. There will be no compulsory as

not issued within prescribed time, dealer will be deemed to have been self assessed [para 2.12 of White Paper on State

monthly/quarterly, as prescribed, along with challans. Returns will be scrutinised and if there is techn ical mistake, it will

White Paper on State-Level VAT) As per West Bengal VAT Act, if dealer does not receive any intimation within two yea

deemed that his return has been accepted by sales tax authority. In case of Andhra Pradesh, the time limit is four years

3.8 Other provisions of State VAT :The other provisions are as follows -

Refund of input tax :

Entire input tax will be refundable within three months, when final product is exported. In respect of sale to EOU/SEZ, th

tax paid will be refunded within three months [para 2.5 of White Paper on State-Level VAT). If tax credit exceeds tax pay

carried to end of next financial year. Excess unadjusted credit at end of second year will be eligible for refund [para 2.4 o

Check posts and transit passes :

Government can set up check posts. The invoice will have to be produced at the check posts. System, of transit pass m

Exemptions and incentives to new industries already granted to continue :

State Governments have stopped giving incentives to new industries after January, 2000. However, there are commitmJanuary, 2000. State Governments to continue with the incentives which were already granted [para 2.15 of White Pape

MRP based VAT on drugs at first stage :

Some States have introduced MRP based VAT at first stage of sale within Maharashtra. There will be no VAT at any su

practical considerations in view of ground realities, it is true that this vitiates basic principle of VAT.

4.Accounting treatment of VAT

ICAI has issued Guidance Note on Accounting for State level VAT on 15-4-2005. The guidance note is based on princip

released on 17-1-2005. However, there are variations in respect of each State. Hence, accounting policies will have to b

the particular State. Following broad principles should be kept in mind.

As per AS-2, cost of purchase for purpose of inventory valuation should not include tax, if credit of tax paid is a

For purpose of income tax, inventory valuation should be inclusive of taxes, even if its credit is available, as pe

Purchase account should be debited with net amount. VAT credit receivable on purchases should go to VAT C

Accounts of each rate i.e. 0%, 1%, 4%, 12.5% etc. is required to be kept separately.

In case of capital goods, as per AS-10, cost of fixed assets should include only non-refundable duties or taxes.

If entire credit of tax on capital goods is not available immediately, the credit that is available immediately shou

(Capital Goods) Account and credit which is not available immediately should be taken to VAT Credit Deferred

In case of sales, the sales account should be credited only with net amount (i.e. exclusive of VAT). Tax payable


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VAT Payable Account [This is exclusion method. Interestingly, in case of excise duty paid on final product, in

account is credited inclusive of excise duty on final product].

If any VAT is payable at the end of period (after adjusting VAT credit available), the balance is to be shown as

5. Impact of VAT on CST

CST will continue after introduction of State VAT, though it is proposed to be phased out in due course. It is announced

2006 and to Nil w.e.f. 1-4-2007. However, final decision has not been taken by Empowered Committee on this issue.

5.1 Provisions in State VAT relating to CST :

The provisions in respect of Central Sales Tax are summarised below

Present CST rate of 4% will continue for some time. CST may go after decision in respect of loss of revenue to

Taxation information System is put in place [para 4.3 of White Paper on State-Level VAT].

Present CST forms i.e. C, D, E-I/E-II, F, H and I will also continue.

There will be no credit of CST paid on inter-state purchases [para 2.6 of White Paper on State-Level VAT]

If goods are sent on stock transfer outside the State, input tax paid in excess of 4% will be allowed as credit. In

will not be allowed as credit if goods are sent inter-state.

5.2 Local VAT and not National VAT :

The way sales tax VAT is proposed to be implemented by States, it is only local (i.e. State) VAT and not national VAT. O

VAT.

Composition scheme dilutes VAT principles :

Composition system for small dealers having turnover upto Rs 50 lakhs has been introduced. Some States have introdu

on the basis of MRP at first stage only, with no tax at subsequent stages. Though these are considering ground realities

basic concept of VAT.

5.3 Discriminatory treatment to goods brought from out of State :

Provision of not granting credit of CST seems discriminatory. Article 303 of Constitution of India provides as follows, Neshall have power to make any law giving any preference to one State over another, or making any discrimination betwe

304(a), State Government can impose tax on goods imported from other States, but cannot discriminate between goods

manufactured within the State.

Kelkar Committee in para 7.2 of its final report submitted in December 2002, has also expressed apprehensions

304(a) in State Level VAT. The Kelkar Committee has expressed apprehension that investment decisions will te

within the State is larger than outside.5.4 States indirectly taxing inter-state transaction :

If goods sent on stock transfer basis, credit will be granted only in excess of 4% tax paid on inputs. Thus, indirectly, tax

Article 286, State Government cannot impose tax on sale or purchase during imports or exports; or tax on sale outside t

can impose sales tax only on sale within the State.

6.Role of Chartered Accountant in VAT

Chartered Accountants have a key role to play in proper implementation and success of VAT.

Record keeping :

VAT will require proper record keeping and accounting. Systematic records of input credit and its proper utilisation is the

Accountants have expertise in these areas. They can play a very significant role in ensuring proper implementation of V

Tax planning :

Careful study of VAT is required to plan purchases and sales. Chartered Accountant is well trained to calculate impact o


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optimum methods of purchases and sale to minimise tax impact.

Negotiations with suppliers to reduce price :

VAT credit will alter cost structure of goods supplied as inputs. Chartered Accountant can ensure that the benefit of cost

company. On the other hand, when similar pressure comes from buyers of his company, he must be ready with full data

Facing audit by departmental officers :

There will be audit wing in department and certain percentage of dealers will be taken up for audit every year on scientif

independent of tax collection wing, to remove bias. There will be cross verification with Central Excise and Income Tax a

Level VAT). Chartered Accountant can ensure proper record keeping to ensure satisfaction of departmental Auditors. H

queries and sort out audit objections, due to his professional expertise.

External Audit of VAT records :

There will be no regular assessment of all VAT returns. Only some returns will be scrutinised. In other cases, return filed

has been reposed on tax payers, check on compliance is necessary. Professionals can play a very vital role in ensuring

VAT laws of some States provide for audit by outside agencies. In Karnataka, audit report is required if turnover exceed

audit by CA, if audit is ordered by Commissioner. Maharashtra Government has made provision for audit by CA if turnov

dealer is required to submit copy of audit report u/s 44AB of Income Tax Act. No separate audit is prescribed, unless spStates may also prescribe external audit, once they see the utility of Audit reports submitted by CA in ensuring tax comp

difference between vat & sales tax

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