Ad-Free CAclubindia and Daily Updates on your mobile. Subscribe Now!

Please clarify this!

Kumar Gaurav (Going...to be C.A soon...) (1624 Points)

03 September 2010

Dear All

Please clarify the meaning of this word:

Neutrality related with VAT...................i am unable to understand this point.

Thanks

Reply
Follow
Share

3 Replies

Faiz Ahmed ( Article Trainee) (1731 Points)
Replied 03 September 2010

See VAT is a tax on value addition made to goods. VAT takes care of evasion by giving set off of input credit. This input credit is not governed by any market forces. It is linked with the purchase value . Hence, it is neutral in regards of market forces and input credit

Upgrade to CAclubindia Pro. Subscribe Now!

CA. Aabhishek Khurana (CHARTERED ACCOUNTANT) (364 Points)
Replied 03 September 2010

SINCE THE SYSTEM HAS ANTI CASCADING EFFECT,IT IS NEUTRAL WITH REGARD TO THE CHOICE OF PRODUCTION TECHNIQUE AS WELL AS BUSINESS ORGANISATION.VAT ALLOWS REBATE OF TAX PAID ON PURCHASES AND HENCE ENSURES THAT THERE IS NO CASCADING EFFECT OF TAX.

ALLOCATION OF RESOURCES IS LEFT TO BE DECIDED BY FREE PLAY OF MARKET FORCES AND COMPETITION.

Whizkid (student) (640 Points)
Replied 29 September 2010

Hey simple... Under VAT Sytem... The buyer wont have any preference of purchasing the product from a specific dealer... Even if the price of goods purchased from diff dealers vary... VAT rate at the end ll be same...for tht category of goods.... So, It imples the system is neutral towards the choice of purchases and t has anti cascadin effects...