VAT is a system of indirect Tax, which has been introduced in place of sales tax. VAT is paid by the producers-manufactures-retailers-dealers of the products. They add on their product/produce price and that is at last paid by the user of the goods/consumer. VAT is a fair and uniform taxation system. It is an effective, transparent, and acceptance worldwide.

The tax paid to the government is always a percentage of the value that the dealer has added to his goods before selling them. That is why this is known as VAT “Value Added Tax”.

It benefits the producers, manufacture, whole sellers, retailers and every the consumer and at last the government also VAT calculations become so easy as simple that every businessmen can regulate it himself. VAT has removed Double Taxation and prevailing unfair practices.

What amount of VAT amount collected from the customer is to be paid to Government?

Vat amount collected from the customer is to be paid to the government. However INPUT VAT i.e. the VAT amount collected from you by your supplier has already been paid to the government.

VAT CALCULATIONS

VAT collected by you – VAT collected from you                                            

OR

Vat on Sales – VAT on Purchases

OR

Output Tax – Input Tax = VAT Payable (To Government)

TERMINOLOGY USED IN VAT

1.                   INPUT TAX: This is a tax paid on purchases to the Suppliers.

2.                   OUTPUT TAX: This is a tax charged on sales from the customers.

3.                   INPUT CREDIT: Permissible Input tax set off against output tax.

4.                   COMPOSITE DEALERS : Option for the dealers with annual gross turnover not exceeding a certain limit (decided by the respective State Government) under this scheme they will pay a small percentage of tax on the basis of their gross turnover. Retailers are not entitled to input Credit under this scheme. State Government has to decide the periods and payment method.

Under the VAT system covering about 550 goods, there will be only two basic VAT rates of 4% and 12.5%, plus a specific category of tax -exempted goods and a special VAT rate of 1 % only for gold and silver ornaments, etc.Under exempted category, there will be about 46 commodities comprising of natural and unprocessed products in unorganized sector, items which are legally barred from taxation and items which have social implications. Included in this exempted category is a set of maximum of 10 commodities flexibly chosen by individual States from a list of goods (finalized by the Empowered Committee) which are of local social importance for the individual States without having any inter-state implications. The rest of the commodities in the list will be common for all the States.  Under  4% VAT rate category, there will be the largest number of goods (about 270), common for all the States comprising of items of basic necessities such as medicines and drugs, all agricultural and industrial inputs, capital goods and declared goods.The remaining commodities,common for all the States, will fall under the general VAT rate of 12.5%. The schedule of commodities will be attached to the VAT Bill of every State.

There are about 46 commodities under the exempted category, this includes a maximum of 10 commodities that each state would be allowed to select, from a broader approved list for VAT exemption. The exempted commodities include natural and unprocessed products in unorganized sector as well as items, which are legally barred from taxation.In terms of decision of the Empowered Committee, VAT on AED items relating to sugar, textile and tobacco, because of initial organizational difficulties will not be imposed for one year after the introduction of VAT, and till then the existing arrangement will continue.