1vat 0002 overview

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 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


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


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 Overview


WINLEN 2-7 SAP AG


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


Ideal In-direct Tax Scenario

GST

WINLEN 2-9 SAP AG


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


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


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


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 Overview


WINLEN 2-14 SAP AG


Business Implications in VAT Regime:

Manufacturer / Trader

VAT Registration

No

VAT Rates & Schedules?Region wise

??

Reg./URD/ Composite

WINLEN 2-15 SAP AG


VAT Business Implications: Overview


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




VAT Registration

No

Bill of Sales

(Exports)



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




VAT Registration

No

Tax Payment

Bill of Sales

(Exports)

Tax Returns



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


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


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


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 Overview


WINLEN 2-22 SAP AG


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


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


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


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


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


Case 4> Exports

Registered Dealer


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


Case 5> Local & Interstate Sales (Taxable)

Registered Dealer

Local Sales(OTL = Rs 12)


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


Registered Dealer

Local Sales(OTL = Rs 12)


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 Overview


WINLEN 2-31 SAP AG


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


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


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


VAT RATE

There will be four categoriesExempt category1% category4% category12.5% category

Exempt category to have about 46 commodities

WINLEN 2-35 SAP AG


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


1vat 0002 overview

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