VAT: As we all know VAT: Value added tax is a tax on the value added to the commodity or service by a business firm. From production till consumption there are various stages in all the stage there is some value getting added to it . Therefore, when a tax is imposed by the government on a business firm when it adds value to goods or services that it may have purchased from other firms, by handling them by their own labor or by processing them. In simple terms, the difference between the purchase value and the sales value is the value added.
Points to remember:
Points to remember:
- An indirect tax.
- Belongs to the family of sales tax.
- Multi point tax keeping value as its base.
- First, it was introduced in France in 1954
- 21 out 24 OECD have accepted it. Currently, 130 countries have adopted it.
Merits:
- Neutral in allocation of resources
- Minimizes scope of tax evasion
Demerits
- Inflationary
- Not a simple tax system
- Burden on producers and shopkeepers
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