Ending VAT confusion

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Ending VAT confusion MS Siddiqui | December 16, 2018

Value-added tax (VAT) is a consumption tax on a product declared by tax authority of a country whenever value is added at each stage of the supply chain, from production to the point of sale. VAT is an ultimate tax on consumer's expenditure. The beauty of VAT is that each person or company along the supply chain has an incentive and obligation to ensure that every other person or company in the supply chain pays the VAT. The process ensures that each transaction is recorded in a transparent manner. It is an indirect consumption tax that is ultimately paid by consumers or buyers on their purchases of goods and services. In other words, VAT is levied on the gross margin at each point in the manufacturing till distribution to retail sale and the customer in the end. As such, VAT is a modern version of sales or excise tax. In case of sales or excise tax on business transactions, the tax is not shown on the bill paid by the buyer. But VAT is different from sales tax in various aspects and the sellers and buyers declare the amount of VAT in the invoice making the entire system transparent. The consumers understand the total VAT paid by him upon purchase or consumption. The tax department can easily manage the tax system with the documents of transactions. Due to the simpl icity of the VAT system, the entire taxation system on products and services has become easier. If the tax system is perfectly implemented, VAT can resolve historical dispute between tax payers and revenue department. As the tax is assessed and collected at each stage at a certain rate, the amount of VAT should be the same percentage of VAT rate on sales price, to be paid by end consumer. A calculation can clarify the nature of the tax. For example, a manufacturer makes and sells candy in one country. Say t he rate of VAT is 10 per cent in that country. The manufacturer bought the raw materials for Tk 2.00. The supplier added a VAT of Tk 0.20. The cost of raw material is Tk 2.00 including an earlier paid VAT. The manufacturer then sells the candy to a retailer for Tk 3.00 plus a VAT of Tk 0.30 for a total of Tk 3.00. The


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Ending VAT confusion by Mohammad Shahjahan Siddiqui - Issuu