What are the benifits of GST against VAT?
Answers (8)
Jan G.
Customer Service rep & founder for wikiworx.info content commons
Best Answers in: Business Analytics (1), Green Business (1)
Not knowing much about GST, yet comparing it to VAT ( on modelling of which i have co-authored a paper; url 1) it would seem to me that GST is administratively more simple, and it may have a smaller risk of fraud.
Assuming that all buyers are obliged to pay GST, and that sellers cannot reclaim their GST-paid-for-inputs: As the value adding "chain" gets longer, it will be charged an increasing amount of tax, which in its turn would render long chains less-competitive - the GST adds transaction-cost.
This aspect must then be weighed with the beneficial impact (for economic progress) of the division of labour, and specialization of activity.
The VAT puts a limit on the end-to-end tax paid in the chain, the GST doesn't do this (under the given assumption).
Links:
Vinod J.
MBA & M. Com Finance/5 Year varied exp. in Corporate Finance, Business Plans & Feasibility, Accounts, MIS Reporting
Best Answers in: Education and Schools (1)
It will help you as well as it will help Governments. You can have better working capital management throght utilising your Tax credit irrespactive of goods or service. It will decrease the complexity in our tax structure which will also help you means you need not to hire consultants.
I'm just wondering why you would assume that sellers cannot claim input credits for items they sell. In canada, this is how the mechanism operates and without the input credits it seems as though the level of taxation would be forever increasing. Only the ultimate consumer, or end-user, should pay the tax. Is this assumption your way of comparing VAT to GST? I'm not familiar with the application of VAT, though I understand that it is a tax that is generally included in the price of something, so the consumer doesnt get the sense that they are paying a tax.
Clarification added February 8, 2010:
To be clear, I agree with the previous response, that GST should be administratively easier to carry out, though we do have a legislation devoted to the application of teh GST here in Canada.
I feel that in Indian scenario, the most important aspect which VAT would be that it would be simpler than the present system of VAT. Various tax would susbsume into GST. In this way there would be less ambiguity with respect to taxation of the transaction. The system is easy to understand and therefore this would help India to become a prefferred destination of doing business. For details on GST Model please read my article on www.themislegal.co.in regards
Under GST, the taxation burden will be divided equitably between manufacturing and services, through a lower tax rate by increasing the tax base and minimising exemptions.GST will be is levied only at the destination point, and not at various points (from manufacturing to retail outlets).
Radha A.
Consultant in customs & indirect taxes, author of Central Excise volume of Halsbury's Laws of India.
Best Answers in: Tax Law (3), Contracts (1), Personal Taxes (1)
(i) In India, VAT is a tax on sales, which the Constitution reserves for the states. Excise duties and service tax are levied by the Centre. This is the situation at present. GST would unify the three, so that there would be a single document. There would also be a single registration with the tax authority. The simplification would be a relief to business.
(ii) One hopes that as the taxable event will be simply defined as 'supply' of goods or services, all the current litigation on whether a particular transaction is a 'sale' or whether it is a 'service' and whether the item is 'manufactured' would be rendered redundant. (iii) Additionally, there ought to be increase in revenue for the governments, due to change in threshold for entering taxable level, and also due to closing of loopholes that plague the present system.
In my experience having worked in both GST + VAT jurisdictions, I dont think that there is really much of a difference btwn the two, unless you are referring to a GST as a Government Service/s tax vs a Goods and Services Tax.
Peter D. also suggests this expert on this topic:
I am assuming that the question has been asked from Indian tax perspective. The probable benefits associated with the introduction of GST will be huge especially because:-
- It seeks to remove a lot of other levies viz luxury tax,purchase tax, stamp duty, octroi (tentative).
- Simplifies the taxation for the business by not having to deal with multiple levies or taxes.
- The value chain continues even in case of inter state movements and as such there will not be added tax burden presently in VAT system the chain breaks in case of stock transfer or inter state sales.
- There would be taxes imposed on Goods & Services and would proably do away with litigation ,which would especially benefit the service industries such as Telecom, Software etc.
However, all depends on how the Central government is able to drive it to the States and whether there will be uniformity of rates across India.
