19 September 2011
I've not quite understood the following merit and demerit of VAT-
MERIT: "As tax burden is rationalised, prices in general will fall"
DEMERIT "The merits accrue in full measure where there is only one rate of VAT and VAT applies to all commodities without any question of exemptions whatsoever. Once concessions like differential rates of VAT, composition schemes, exemption schemes, exemption category goods are built into the system, distortions are bound to occur and the fundamental principle that VAT will totally eliminate cascading effects of taxes will also be subject to qualifications."
The DEMERIT is a bit lengthy, sorry for that. What do they really mean?
I'm very very thankful for your time and help. Thanks a lot.
Vat is charged on value addition only rather on total goods resale value hence it will reduce tax burden and price will decrease.
Demerit Explanation :-
Vat will eliminate cascade effect with different rates and concession as the total chargibility of VAT will differ in every cases. As the Chargability not will be on addition but on the relaxed addition and hence such will evase cascading effect.