Indirect Tax

Merits of VAT

  • Reduced tax evasion
  • Increased tax compliance
  • VAT brings certainity as it is simple
  • VAT is transparent as tax charged is clearly shown in invoice
  • Cheaper exports as in case of exports, VAT is refunded
  • System promotes better accounting system as record of tax paid on purchases required to be maintained
  • VAT is tax neutral.(There is no distinction between labor intensive industries and capital intensive industries as input of both purchases and capital goods is available)


Demerits of VAT

  • TAX Evasion is possible through bogus invoices(fake invoices)
  • Increased compliance cost as records of all purchases and sales required to be maintained.
  • VAT system is distorted(not properly followed) due to various exemptions/concessions)
  • VAT is a consumption based tax(it is collected more by the state which consumes more goods and not by state which produces more)
  • Since, it is tax on expense, it is regressive in nature. It affects poor more as they spend more proportion of their income then the rich

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CA Maninder Singh

CA Maninder Singh is a Chartered Accountant for the past 13 years. He also provides Accounts Tax GST Training in Delhi, Kerala and online.