<\/span><\/h3>\n\n\n\nThe VAT system also suffers from certain limitations because of which it has not yet become popular, especially in underdeveloped countries. Some of the demerits of VAT have been discussed as follows:<\/p>\n\n\n\n
(1) The VAT is Inflationary in Character-<\/em><\/strong> Some people argue that VAT is inflationary in nature that it leaves its consumers with the largest disposable incomes. As against this, it can be said that in a country like India, inflation is more of a tax-push than of a demand-pull nature. As such, VAT is less inflationary than multi-stage turn-over tax in such economies.<\/p>\n\n\n\n(2) It is not a Simple Tax System-<\/em><\/strong> It will be folly to be carried away by some of the simple attractive features of VAT in theory. In theory, it is a simple uniform rate tax without any exemption, but in practice, it has got to be a multi-rate system with exemptions to certain industries. This is necessary with a view to achieving social justice and economic priorities. The so-called simplicity of this system vanishes here.<\/p>\n\n\n\n(3) Additional Burden on Tax Authorities, Producers, and Shopkeepers-<\/em><\/strong> It puts an additional burden on tax authorities, producers, and shopkeepers in that it involves the maintenance of accounting records at every stage from the producer to the retailer. It also entails a higher cost of collection. This is supported by the fact that the introduction of VAT was reckoned to require some 8000 more civil servants in England.<\/p>\n\n\n\n(4) It is not a Neutral Tax-<\/em><\/strong> Since exemptions to certain industries cannot altogether be ruled out, it cannot be claimed that VAT is a perfectly neutral tax.<\/p>\n\n\n\n(5) Revenue Collected is Less-<\/em><\/strong> Another serious drawback of this system is that the revenue collected under it is far less than the revenue collected under the multi-stage turnover tax system.<\/p>\n\n\n\n(6) Possibilities of Tax Evasion-<\/em><\/strong> This system depends upon the cooperation of the taxpayers to a very large extent. Each firm itself calculates its tax liability, to begin with, and also finds out the taxes paid by the earlier firms. Once, however, the sellers realized that the administrative machinery of the government is ill-equipped to do all the necessary cross-checking, they will resort to the creation of false purchase invoices showing that these taxes have already been paid by others. To the extent this happens, tax evasion becomes a major possibility and a common practice.<\/p>\n\n\n\n(7) VAT is not Conducive to Efficiency-<\/em><\/strong> The argument that VAT induces efficiency is not tenable, especially in an economy of shortages where there are speculative hoarding, non-competitive price rise, and similar practices are quite common. In an economy of shortages, goods will be purchased irrespective of their inferior quality and high prices. Hence, it is doubtful that VAT will prove helpful in improving efficiency.<\/p>\n\n\n\n(8) High Cost-<\/em><\/strong> Proper administration of VAT entails high costs than other taxes, both costs to the administration, of assessment, collection, and verification, as also costs to the tax-payer. Virtually all the sales and purchase transactions of businesses would need to be recorded for tax purposes. The strength of the tax administration personnel would need augmentation and the trader would also need to be educated.<\/p>\n\n\n\nBesides, a VAT has a tendency to be more regressive than alternative taxes- though in some cases only fractionally marginal. This regressiveness affects income distribution also adversely.<\/p>\n\n\n\n
This disadvantage, however, can be overcome by introducing a rate structure into VAT say 12.5 percent instead of 10 percent, with a wider range of exemptions that would fetch the same revenue. Alternatively, a multiple rate structure might be introduced to allow for heavier taxation on ‘luxuries’. This would have an approximately neutral effect on income distribution.<\/p>\n\n\n\n
\n\n\n\nDecision-Making Approach Snyder\u2019s Model<\/a> Critical Evaluation of Morgenthau Realist Theory<\/a> Concept of Bureaucracy<\/a> Scientific Management Theory of Organization<\/a> Management- Definition, Features, and Functions<\/a> Motivation and its Types<\/a> Reasons for the Growth of Administrative Law<\/a> Cultural Developments in Medieval India<\/a>– NIOS<\/mark><\/td><\/tr><\/tbody><\/table><\/figure>\n","protected":false},"excerpt":{"rendered":"Value-Added Tax: Value-Added Tax (VAT) is a tax on the value added to a commodity or service. It means that the value-added tax is imposed on the value that a business firm adds to the goods and services that it purchases from other firms. It adds value by processing or handling these purchased items with its own labor force or its own machinery, buildings, or other capital goods. It then sells the resulting product to consumers or to other firms. Thus, the difference between the sale proceeds and the cost of the materials, etc., that it has purchased from other <\/p>\n","protected":false},"author":1,"featured_media":107999,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[589],"tags":[8618,8619,8616,8615,8617],"jetpack_sharing_enabled":true,"jetpack_featured_media_url":"https:\/\/i0.wp.com\/gkscientist.com\/wp-content\/uploads\/2023\/03\/Value-Added-Tax-VAT.jpg?fit=500%2C250&ssl=1","_links":{"self":[{"href":"https:\/\/gkscientist.com\/wp-json\/wp\/v2\/posts\/107950"}],"collection":[{"href":"https:\/\/gkscientist.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/gkscientist.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/gkscientist.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/gkscientist.com\/wp-json\/wp\/v2\/comments?post=107950"}],"version-history":[{"count":0,"href":"https:\/\/gkscientist.com\/wp-json\/wp\/v2\/posts\/107950\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/gkscientist.com\/wp-json\/wp\/v2\/media\/107999"}],"wp:attachment":[{"href":"https:\/\/gkscientist.com\/wp-json\/wp\/v2\/media?parent=107950"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/gkscientist.com\/wp-json\/wp\/v2\/categories?post=107950"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/gkscientist.com\/wp-json\/wp\/v2\/tags?post=107950"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}} |