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Concept And Meaning Of Value Added Tax (VAT) And Its Computation

Value added tax (VAT) is known as the most recent and effective innovation in the taxation field. It is levied on the value added of the goods and services. Theoretically, the tax is broad based as it covers the value added to each commodity by a firm during all stages of production and distribution.
Value added tax (VAT) is considered as one form of sales taxation. VAT is a multiple stage tax which has grown as a hybrid of turnover tax and retail level sales tax. Value added tax (VAT), however, differs from turnover tax as the turn over tax is imposed on the total value at each while VAT is imposed only on value added at that stage. VAT varies from sales tax in the sense that VAT is imposed at each stage of production and distribution whereas retail sales tax is imposed only at one stage, the final stage. VAT helps to minimize many problems related with tax evasion. Therefore, value added tax (VAT) is more productive and less destructive than retail sales tax.

Computation of VAT at different stages of distribution channel (VAT rate 10%)

Stage...................Sales........Purchase price.......Net added value..........VAT
Farmer...............$ 500.......Nil...............................500..........................50-0 = 50
Manufacturer.......700.......500.............................200..........................70-50=20
Wholesaler............800.......700.............................100..........................80-70=10
Retailer..................1000....800.............................200........................100-80=20
Final.......................-----.....1000..........................1000.................200-100=100

4 comments:

Nelson Sottile said...

Value added tax, also known as consumption tax, is the tax on the purchase price wherein the burden of payment is shifted to the buyer, and plays a crucial role in every government. Considering the number of sale transactions and services that happen every day, a huge amount of value added tax is collected by the government. This is very beneficial to the economy of the state for road construction, establishment of public schools and social services.

Nelson Sottile

Jeanie Yearsley said...

Almost every consumer good has now been imposed with VAT, which is actually good, as the tax can be beneficial to the development of infrastructure and policies aimed at furthering areas that need improvement in the country. For example, the resources are spent on repaying the government debt, which can help the economy grow and prevent inflation. And it also promotes to the betterment of living, with benefits like medical care and shelters.



@Jeanie Yearsley

Wystan Dale said...
This comment has been removed by the author.
Wystan Dale said...

VAT is an efficient tax measure to bring in more revenue for the government, which will be used mainly for the country’s progress and prosperity. Aside from infrastructure, the money collected is also used to finance critical government programs such as healthcare. VAT provides funds to reduce the debit of these said programs for it to continue giving service to the people.

Wystan Dale

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