VAT – A tax which is not new to our account system. This tax was implemented as sales tax on all the products leaving traders not keeping their books of accounts. This leads to disparity in income as they do not declare sales and income making way for the theft of taxes. This tax system was considered as a key point in economic reforms. An empowered committee on VAT was organised. One of its member reported traders have got used to multi points evasion. By implementing VAT government has tried to ensure that wholesalers, retailers or all traders they pay tax. In new policy, if the tax is paid at wholesales point then the traders must have proof of tax deduction at source (TDS). Thus, traders are supposed to have all the records of the tax. If one looks around the world, one finds that in Europe and South America VAT includes

  1. Sales Tax
  2. Octroi
  3. Luxury Tax
  4. Other Inter State Taxes
  5. Excise Tax etc.

Thus, in western countries there is a single point including all indirect taxes. However, Indian Government proposed VAT (Value Added Tax) replacing only sales tax with smaller taxes like contract tax, lease tax, turnover tax with central states tax (CST). Moreover, service tax and excise tax will have to be paid separately. The purpose of VAT is to create common market stand all over India. The drastic steps taken by Government are baby steps towards the route of a single VAT system. The economic gains of uniform tax rates help in creation of an efficient tax system. VAT (Value Added Tax) is thus a tax that has high reaching effects from wholesale trader to retailer to small traders and finally consumer of the product sales tax exemption and revenue increment are the base backbone of VAT (Value Added Tax) to be implemented.