Merits of vat
This query is : Resolved
22 March 2016
Reduced Tax evasion: Even if tax is evaded at one stage, the transaction gets caught in next stage of production or distribution
Increased tax compliance: VAT acts as a self-policing mechanism as the buyer can get credit of tax paid only if the seller issues the invoice showing tax and thus, the buyer insists on getting the invoice from the seller, thereby acting as a police for the seller.
Certainty: VAT brings certainty owing to its simple tax structure and minimum variations
Transparency: As the tax charged has to be shown clearly in the invoice, the system becomes transparent with no hidden taxes
Cheaper Exports: Exports get cheaper as taxes paid at earlier stages could be availed as credit or refunded in cash.
Better accounting systems: Since the tax paid at earlier stage is to be received back, the system promotes better accounting systems.
Neutrality: Since tax credit of both inputs and capital goods is available, there is no distinction between labour intensive and capital intensive industries.
Reduced Tax evasion: Even if tax is evaded at one stage, the transaction gets caught in next stage of production or distribution
Increased tax compliance: VAT acts as a self-policing mechanism as the buyer can get credit of tax paid only if the seller issues the invoice showing tax and thus, the buyer insists on getting the invoice from the seller, thereby acting as a police for the seller.
Certainty: VAT brings certainty owing to its simple tax structure and minimum variations
Transparency: As the tax charged has to be shown clearly in the invoice, the system becomes transparent with no hidden taxes
Cheaper Exports: Exports get cheaper as taxes paid at earlier stages could be availed as credit or refunded in cash.
Better accounting systems: Since the tax paid at earlier stage is to be received back, the system promotes better accounting systems.
Neutrality: Since tax credit of both inputs and capital goods is available, there is no distinction between labour intensive and capital intensive industries.
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