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WINLEN 2-1 SAP AG
VAT Timeline
VAT Period End ProcessingVAT Business ImplicationsVAT Basic Concepts
VAT Overview
White paper and KARVAT
Version 1.0
WINLEN 2-2 SAP AG
VAT Timeline
VAT Period End ProcessingVAT Business ImplicationsVAT Basic Concepts
VAT Overview
Whitepaper and KARVAT
WINLEN 2-3 SAP AG
SAP AG 2002,VAT Overview 3
VAT Timeline
Until Dec,2004 Until Dec,2004Model Vat provided to State Govt. in 1998Most States issue draft VAT legislationsHaryana introduced VAT in April 2003Karnataka VAT receives presidential assent on 15.12.2004
WINLEN 2-4 SAP AG
SAP AG 2002,VAT Overview 4
VAT Timeline
Until Dec,2004 Until Dec,2004
Model Vat provided to State Govt. in 1998Most States issue draft VAT legislationsHaryana introduced VAT in April 2003Karnataka VAT receives presidential assent on 15.12.2004
Empowered committee brings out white paper
States to amend their VAT Bills/Laws in line with white paper
FM expected to make announcement while laying budget
Jan-Feb, 2005 Jan-Feb, 2005
WINLEN 2-5 SAP AG
SAP AG 2002,VAT Overview 5
VAT Timeline
Jan-Feb,2003 Jan-Feb,2003
Empowered committee brings out white paper
States to amend their VAT Bills/Laws in line with white paperFM expected to make announcement while laying budget
Until Dec,2004 Until Dec,2004
Model Vat provided to State Govt. in 1998Most States issue draft VAT legislationsHaryana introduced VAT in April 2003Karnataka VAT receives presidential assent on 15.12.2004
March, 2005 March, 2005
All States expected to bring in amended VAT laws
All States to notify VAT rules and VAT Forms
Country is geared up for VAT by April 1, 2005
Extend Footprint Inside The Enterprise
Extend To Entire Business Network (Customers, Suppliers, Partner)
Extend Advantage to Future Deals
WINLEN 2-6 SAP AG
VAT Timeline
VAT Period End ProcessingVAT Business ImplicationsVAT Basic Concepts
VAT Overview
Whitepaper and KARVAT
WINLEN 2-7 SAP AG
SAP AG 2002,VAT Overview 7
Current In-direct Tax Scenario
Local Sales Tax
Central Sales Tax
Turnover Tax
Works Contract Tax
Octroi , Entry Tax
Luxury Tax
Other taxes……
Excise / CENVAT
Service Tax
WINLEN 2-8 SAP AG
SAP AG 2002,VAT Overview 8
Ideal In-direct Tax Scenario
GST
WINLEN 2-9 SAP AG
SAP AG 2002,VAT Overview 9
What we may end up with ??
Local Sales Tax
Central Sales Tax
Turnover Tax
Works Contract Tax
Octroi , Entry Tax
Luxury Tax
Excise / CENVAT
Service Tax
VAT
VAT
VAT
VAT
VAT
WINLEN 2-10 SAP AG
SAP AG 2002,VAT Overview 10
Current VAT : Local Purchase & Sales
Vendor WholesalerManufacturer
Local Purchase Local Sales
Input Tax= Rs 10 Output Tax= Rs 15
Net Tax to Govt. = Output Tax- Input Tax= Rs 15 – Rs 10= Rs 5
* Assuming General VAT Rate @ 10%
TAX InvoiceItem = RM
Basic Price= Rs 100VAT Amount = Rs 10Invoice Val = Rs 110
TAX InvoiceItem = FG
Basic Price= Rs 150VAT Amount = Rs 15Invoice Val = Rs 165
Karnataka
WINLEN 2-11 SAP AG
SAP AG 2002,VAT Overview 11
Consumer
Manufacturer
Inter-state VAT : Ideal Scenario
Wholesaler
Retailer
Karnataka
Maharastra
Sales @ Rs. 150
Sales @ Rs. 125
Sales @ Rs. 200
Net Tax to govt.= Rs 2.5
Net Tax to Govt.= Rs. 5
VAT Rs. 15
Karnataka Transfers to Maharastra
Assume Uniform Rate of VAT @10%
OP Tax = Rs. 15
IP Tax = Rs. 12.5
OP Tax = Rs. 20
IP Tax = Rs. 15
RM @ Rs. 100IP Tax = Rs. 10
OP Tax = Rs. 12.5
Net Tax to Govt.= Rs 2.5
WINLEN 2-12 SAP AG
SAP AG 2002,VAT Overview 12
Consumer
Manufacturer
Inter-state VAT : Proposed Scenario
Wholesaler
Retailer
Karnataka
Maharastra
Sales @ Rs. 150
Sales @ Rs. 125
Sales @ Rs. 200
Net Tax to Govt.= Rs (-) 9.5
Net Tax to Govt.= Rs.20
Karnataka Transfers to Maharashtra=NIL
Assume Uniform Rate of VAT @10%
CST = Rs. 3 .O
IP Tax = Rs. 12.5
OP Tax = Rs. 20
IP Tax = Rs. 0
RM @ Rs. 100IP Tax = Rs. 10
OP Tax= Rs. 12.5
Net Tax to Govt.= Rs 2.5CST @ 2%
WINLEN 2-13 SAP AG
VAT Timeline
VAT Period End ProcessingVAT Business ImplicationsVAT Basic Concepts
VAT Overview
Whitepaper and KARVAT
WINLEN 2-14 SAP AG
SAP AG 2002,VAT Overview 14
Business Implications in VAT Regime:
Manufacturer / Trader
VAT Registration
No
VAT Rates & Schedules?Region wise
??
Reg./URD/ Composite
WINLEN 2-15 SAP AG
SAP AG 2002,VAT Overview 15
VAT Business Implications: Overview
Manufacturer / Trader
VAT Registration
No
Inputs(VAT able/No VAT able)
Subcontract/Job Work
Raw Material
Capital Goods
VATInvoice
VAT Invoice
Bill of Sale
VAT Rates & Schedules ?Region wise
??
Reg./URD/ Composite
WINLEN 2-16 SAP AG
SAP AG 2002,VAT Overview 16
VAT Business Implications: Overview
Manufacturer / Trader
VAT Registration
No
Bill of Sales
(Exports)
Inputs(VAT able/No VAT able)
Subcontract/Job Work
Raw Material
Capital Goods
VATInvoice
VATInvoice
(Local sales)
VAT Invoice
Bill of Sale
Bill OfSales(CST)
DeliveryChallan(STO)
VAT Rates & Schedules ?Region wise
??
Sales (Taxable / Non Taxable)
Reg./URD/ Composite
WINLEN 2-17 SAP AG
SAP AG 2002,VAT Overview 17
VAT Business Implications: Overview
Manufacturer / Trader
VAT Registration
No
Tax Payment
Bill of Sales
(Exports)
Tax Returns
Inputs(VAT able/No VAT able)
Subcontract/Job Work
Raw Material
Capital Goods
VATInvoice
VATInvoice
(Local sales)
VAT Invoice
Bill of Sales
Self Assessments ??
Bill OfSales(CST)
DeliveryChallan(STO)
Period End
Processing
VAT Rates & Schedules
VAT Registers
Sales (Taxable / Non Taxable)
Reg./URD/ Composite
Tax Period:
Month/Qtr
WINLEN 2-18 SAP AG
SAP AG 2002,VAT Overview 18
General VAT Rate & List of Schedules:General VAT Rate for any Item 12.5 % (proposed)
Except when the Item falls in any of the following Schedules:
Schedule I - List of Exempted Items 0%e.g. Essential commodities
Schedule II - List of Valuable Items 1%e.g. Jewelry- Gold / Silver
Schedule III - List of other items 4%e.g. Industrial inputs/ Declared Goods
Schedule IV - Negative or Restricted Inputs List(on which No Input Credit is available)
e.g Office beverages, furniture etc
WINLEN 2-19 SAP AG
SAP AG 2002,VAT Overview 19
VAT: Input Tax
Parameters determining Input Tax
Plant ~ Region & Status (ST Concession,if any)Vendor ~ Region & Status (Registered,Composite,URD etc)Material - (Classification of Materials)
General Requirements for taking Credit on Inputs
Receipt of Valid Tax InvoicePurpose of Use ~ Business / Not In Business Use
Additional Requirements for Capital Goods:
Amortization period for Credit based on State regulations0 to 3 yearsat Monthly installments
Inventory ValuationAccounting standard v. Income tax laws
WINLEN 2-20 SAP AG
SAP AG 2002,VAT Overview 20
VAT: Output TaxOutput Tax Liability: (On transaction Value)
Local Sales Inter-State Sales Purchase Tax on URD PurchasesPast LST/CST Liability or Penalties
Treatment for Input Credit Reversals on account of Inter-State Sales (No, in most states )Inter-State STO (Partial / Full)Exempted Goods Sales (Full)
Input Credit Reversal on Capital Goods: Stock Transferred across the State (within Tax amortization period) Change in Use (from Business Purpose to Other)
Tax Invoice / Bill of SaleSeparate number range requirementTax Invoice mandatory for taking Input CreditCST, Exports to be on Bill of Sale document
WINLEN 2-21 SAP AG
VAT Timeline
VAT Period End ProcessingVAT Business ImplicationsVAT Basic Concepts
VAT Overview
Whitepaper and KARVAT
WINLEN 2-22 SAP AG
SAP AG 2002,VAT Overview 22
Period End Processing for VAT
Requirements for Period End Processing:
Input Credit Reversal for Taxable or Non-Taxable Sales, as per requirement of State VAT Acts
Computation of Net Tax Liability / Refund for a Plant/ Reg. ID
Preparation of VAT Registers & VAT Returns
Preparation of Tax Payment / Refund Challan
When ?
At The End of Tax- Period (may be month or a quarter)
WINLEN 2-23 SAP AG
SAP AG 2002,VAT Overview 23
Net Tax Calculation for a Tax Period:NET Tax payable = (O + P + R ) – ( I + A ) for each Regd. ID
WhereO => Output Tax Payable (on Local / Interstate Taxable Sales )
P => Purchase Tax Payable (on Local URD Purchases)
R => Reversal of Input Tax credit (e.g.Purchase Returns)
I => Input Tax Credit (Net of Reversals, if any)
A => Adjustments (e.g. Sales Returns)
WINLEN 2-24 SAP AG
SAP AG 2002,VAT Overview 24
Case 1> Local Sales (Taxable)
Registered Dealer
Local SalesLocal Purchase
CIT = 12 Rs OTL = 15 + 2 Rs
Taxable Sales %= 100%
Taxable Sales(Tax payable = Rs 15)
Net Tax Payable to Govt. = (OTL+ Pur. Tax) - (CIT )= (15 + 2) – (12)= 17 - 12= 5 Rs
Taxable Purchase(Tax paid = 10 Rs)
URD Purchase(Tax Paid = 2 Rs) Purchase Tax
(Tax Payable = Rs 2)
Total Sales %=100%
Assuming Purchase Tax paid is creditable
WINLEN 2-25 SAP AG
SAP AG 2002,VAT Overview 25
Case 2> Local Sales (Taxable & Non Taxable)
Registered Dealer
Local SalesLocal Purchase
CIT = 12 Rs OTL = 15 + 2Rs
Taxable Sales %= 50%
Exempted Sales % = 50%
Taxable Sales(Tax payable = Rs 15)
Exempted Sales(Tax payable= Rs 0)
Net Tax Payable to Govt. = (OTL+ Pur. Tax) - (CIT – Input Tax Reversals)= (15 + 2) – (12 – 50% x 12)= 17 - (12 – 6)= 11 Rs
Taxable Purchase(Tax paid = 10 Rs)
URD Purchase(Tax Paid = 2 Rs) Purchase Tax
(Tax Payable = Rs 2)
Total Sales %=100%
Assuming Purchase Tax paid is creditable
RequiresFull
Reversals
WINLEN 2-26 SAP AG
SAP AG 2002,VAT Overview 26
Case 3> Interstate Stock Transfers
Registered Dealer
Local Taxable Purchase(CIT = Rs 10)
CIT = 10
Inter-State STO’s
Allowable Credit on STO = (10 – 4 )% of Tax Base Value = 6 % of 100 = Rs 6
Net Tax Liability = OTL – CIT (Allowable Credit on STO )= Rs 0- 6 = Rs - 6 (I.e. Refund/Carry forward)
Inter-state Stock TransfersLocal Purchases
Assuming Purchase Tax is Creditable & No Input Credit Reversal for Inter-State Sales
VAT InvoiceBase Price =Rs 100VAT @ 10%= Rs 10Inv Value = Rs 110
Allowable Credit on
STO = VAT Rate – 4%
OTL = 0
Interstate STO = 100%
WINLEN 2-27 SAP AG
SAP AG 2002,VAT Overview 27
Case 4> Exports
Registered Dealer
Local Taxable Purchase(CIT = Rs 10)
CIT = 10
Exports
Net Tax Liability = OTL – CIT = Rs 0- 10= Rs - 10 (I.e. Refund)
ExportsLocal Purchases
Assuming Purchase Tax is Creditable
VAT InvoiceBase Price =Rs 100VAT @ 10%= Rs 10Inv Value = Rs 110
No Input Credit
Reversal for
Exports
OTL = 0
Exports = 100%
WINLEN 2-28 SAP AG
SAP AG 2002,VAT Overview 28
Case 5> Local & Interstate Sales (Taxable)
Registered Dealer
Local Sales(OTL = Rs 12)
Local Taxable Purchase(CIT = Rs 9)
CIT = 10 OTL = 15 + 1
URD Purchase(CIT = Rs 1)
Inter-State Sales(OTL = Rs 3)
Net Tax Payable = (OTL+ Pur. Tax) - (CIT)= (15 + 1) – (10 )= 16 - 10= 6 Rs
Total SalesTotal Purchases
Purchase Tax (Tax Payable = Rs 1
Assuming Purchase Tax is Creditable & No Input Credit Reversal for Inter-State Sales
Local Sales = 50%
Interstate Sales = 50%
Total Sales 100%
WINLEN 2-29 SAP AG
SAP AG 2002,VAT Overview 29
Registered Dealer
Local Sales(OTL = Rs 12)
Local Taxable Purchase(CIT = Rs 9)
CIT = 10 OTL = 15 + 1
URD Purchase(CIT = Rs 1)
Inter-State Sales(OTL = Rs 3)
Exports
Exempted Sales
Inter-State STO
Local Sales = 50 %
Inter-States Sales = 20%
Net Tax Payable = (OTL+ Pur. Tax) - (CIT – Input Tax Reversal for Non Taxable) + All. Credit on STO= (15 + 1) – [(10 – 20% x 10) + (20% of CIT) x (10-4)%/10%)]= 16 - [(10 – 2) + (2x0.6)]= 16 – [8+1.2] = 6.8
Total SalesTotal Purchases
Tot Sales % =100%
Purchase Tax (Tax Payable = Rs 1)
Exports = 10%
Case 6> Local & Inter-State Sales(Taxable & Non Taxable)
Inter-State Purchase
Imports
Inter-State STO
STO = 20%
Assuming Allowable Credit on Inputs for Inter-State STO = VAT rate – 4%
WINLEN 2-30 SAP AG
VAT Timeline
VAT Period End ProcessingVAT Business ImplicationsVAT Basic Concepts
VAT Overview
Whitepaper and KARVAT
WINLEN 2-31 SAP AG
SAP AG 2002,VAT Overview 31
Design of VAT
The design seeks to strike a federal The design seeks to strike a federal balancealance
Between common point of convergence and flexibility for localBetween common point of convergence and flexibility for localcharacteristics of the States.characteristics of the States.
Common point of convergence relate to concept of set off, its Common point of convergence relate to concept of set off, its coverage and related issuescoverage and related issues
Flexibility relate to selecting some of exempt goods, amortizatiFlexibility relate to selecting some of exempt goods, amortization on period of input tax credit on period of input tax credit on capexcapex etcetc
WINLEN 2-32 SAP AG
SAP AG 2002,VAT Overview 32
All the Goods will be covered under VAT
Declared Goods will also be covered
Certain Goods will remain outside VAT
These Goods are ;LiquorPetrolDieselAviation turbine fuelMotor spiritLottery Tickets
Coverage of Goods
WINLEN 2-33 SAP AG
SAP AG 2002,VAT Overview 33
Coverage of Goods (contd.)
These goods are outside VAT as their prices are not fully marketdetermined
These goods will continue to be taxed either in the existing Laws or within VAT Act with special provisions
These goods are to be taxed at uniform floor rates decided by the EC.
WINLEN 2-34 SAP AG
SAP AG 2002,VAT Overview 34
VAT RATE
There will be four categoriesExempt category1% category4% category12.5% category
Exempt category to have about 46 commodities
WINLEN 2-35 SAP AG
SAP AG 2002,VAT Overview 35
VAT RATE (contd.)
Exempt category consists of:Natural and un-processed products in unorganized sectorItems legally barred from taxationItems having social implications
Out of 46 commodities 36 are common across the country
10 commodities will be flexibly chosen by individual State from a list finalized by EC
WINLEN 2-36 SAP AG
SAP AG 2002,VAT Overview 36
VAT RATE (contd.)
4% category consists of About 270 items
Common for all the States
Items of basic necessity such as Medicines and Drugs
All agricultural and industrial inputs
Capital goods
Declared goods
WINLEN 2-37 SAP AG
SAP AG 2002,VAT Overview 37
VAT RATE (contd.)
VAT bill of each State to contain schedule of commodity
12.5% category consists of all the remaining goods which are common across the country
AED items like Sugar, Textiles and Tobacco will be exempt from the VAT in the first year
Such exemption to be reviewed after one year
WINLEN 2-38 SAP AG
SAP AG 2002,VAT Overview 38
STATUS OF OTHER TAXES
All existing taxes like TOT, Surcharge, Additional Surcharge and special Additional taxes to be abolished
VAT bills not to make any reference to these taxes
Existing Entry Tax not being in lieu of Octroi may be continued only if Vatable
If not Vatable such Entry Tax to be abolished.
Existing Entry Tax in lieu of Octroi may continue all though not made Vatable.
WINLEN 2-39 SAP AG
SAP AG 2002,VAT Overview 39
COVER OF SET OFF/INPUT TAX CREDIT
Input Tax Credit available to both manufacturers and traders
Input Tax Credit available for purchase of inputs meant for both local sales and inter-State sales
Input Tax Credit is available in the month of purchase irrespective of when the inputs are utilised or sold
WINLEN 2-40 SAP AG
SAP AG 2002,VAT Overview 40
STOCK TRANSFER/CONSIGNMENT SALES
Input Tax Credit is available in respect of purchase of Inputs which are stock transferred out of the State.
However the credit will be restricted to Input Tax paid in excess of 4%.
WINLEN 2-41 SAP AG
SAP AG 2002,VAT Overview 41
CARRY FORWARD OF TAX CREDIT
If Input Tax credit exceeds output Tax in a month, it results in excess credit
Such excess to be carried over to end of next fiscal
Till the end of next fiscal the excess will be adjusted on a month to month basis
Any excess remaining un-adjusted at the end of next fiscal will be refunded
In other words, the carry over period is spread in the range of 23 months to 12 months.
WINLEN 2-42 SAP AG
SAP AG 2002,VAT Overview 42
INPUT TAX CREDIT ON CAPEX
Available for both Traders and Manufacturers
Available for adjustment over a maximum of 36 equal monthly installments
The States have liberty to reduce the number of installments
There is a negative list of capital goods non-eligible for Input Tax Credit
This negative list is to be made on the basis of principles already decided by the Empowered Committee (principles not published)
WINLEN 2-43 SAP AG
SAP AG 2002,VAT Overview 43
SPECIAL TREATMENT FOR EXPORT
Input Tax paid will be refunded in full
This refund will be given within 3 months
SEZ/EOU will either get exemption or refund of Input Tax paid within 3 months.
WINLEN 2-44 SAP AG
SAP AG 2002,VAT Overview 44
TREATMENT OF OPENING STOCK
All tax paid goods purchased on or after 01.04.2004 will be eligible
The above purchases are eligible if they are still in stock as on 01.04.2005
Input Tax credit is subject to submission of requisite documents
Re-sellers holding stock of tax paid goods are also eligible
Sales tax paid on the above stocks will be set off against output tax.
WINLEN 2-45 SAP AG
SAP AG 2002,VAT Overview 45
TREATMENT OF OPENING STOCK contd.
Input tax credit on opening stock will be given after an interval of 3 months
In other words, it will be given from the month of July 2005
Input tax credit will be given over a period of 6 months
In other words, Sales Tax paid on opening stocks will be available from July 2005 till December 2005.
WINLEN 2-46 SAP AG
SAP AG 2002,VAT Overview 46
TAX INVOICE
All VAT dealers to issue serially numbered tax invoice
Tax invoice to have prescribed numbers
Tax invoice to be signed & dated by dealer/ his regular employee
Dealer to get counter foil/duplicate of tax invoices
Dealers having turnover less than the specified amount to issue Cash Memo/bill
WINLEN 2-47 SAP AG
SAP AG 2002,VAT Overview 47
TIN
Dealers to get unique TIN Numbers
TIN Numbers consists of 11 digits numerals of which first two digits represent the State Code.
Balance 9 digits will be as allotted by concerned State
WINLEN 2-48 SAP AG
SAP AG 2002,VAT Overview 48
RETURNS AND ASSESSMENT
Monthly/Quarterly returns as prescribed by the State VAT Rules to be filed
Returns to be accompanied with payment challans
Returns to be scrutinized by the Department within the prescribed time limit
Any technical mistake detected on scrutiny to be rectified and short payment made good by the dealer
Return Forms as well as other procedures to be simple in all the States.
There will not be any compulsory annual assessment
WINLEN 2-49 SAP AG
SAP AG 2002,VAT Overview 49
RETURNS AND ASSESSMENT cond..
In the absence of a Notice proposing departmental audit, a dealer is deemed to have been self-assessed.
VAT bills of all States to state the provision of self-assessment
Only certain percentage of dealers will be scientifically selected for departmental audit
Departmental audit wing to be de-linked from tax collection wing
The audit to be conducted in a time bound manner and completed within 6 months
WINLEN 2-50 SAP AG
SAP AG 2002,VAT Overview 50
RETURNS AND ASSESSMENT cond..
Audit report copy to be sent to dealer
If any evasion is detected on audit the concerned dealer may be taken up for audit for previous periods
A comprehensive cross checking computerized system will be worked out on the basis of co-ordination between various tax authorities of the State Government and Central Excise and Income-tax Departments
WINLEN 2-51 SAP AG
SAP AG 2002,VAT Overview 51
OTHER IMPORTANT ASPECTS
Declaration Form like Form 37 etc., will be dispensed with
Incentive schemes existing under present Sales Tax Laws may be continued in the manner deemed appropriate by the States
However, States to ensure that VAT chain is not affected
Penal provisions in the VAT Bills should not be more stringent than present
WINLEN 2-52 SAP AG
SAP AG 2002,VAT Overview 52