VAT- A Modern Mechanism to Prevent Tax Evasion

VAT being a global phenomenon, though not adopted by America, still has some new perspectives in the direction of enhancement of revenue and thus contributing to the growth of economy. India tasted the honey of VAT by the tongue of the state of Haryana. Value Added lax (VAT) is a system of indirect tax levied on exchanges. It is charged on the value added that results from each exchange. It differs from a sales tax because a sales tax is levied on the total value of the sale to the ultimate consumer. This new concept was invented by a French Economist Maurice Laure, Joint Director of the French Tax Authority, in 1954. VAT is neutral with respect to the number of passages that there are between the producer and the final consumer. It is an indirect tax, in that the tax is collected from someone other than the person who actually bears the cost of the tax (namely the seller rather than the consumer). More than 130 countries including neighbouring Pakistan, Bangladesh, Nepal, Sri Lanka and China have adopted VAT. In India we have two types of VAT, one for the Central Government CENVAT and the other is for the State Government - State VAT or simply VAT. CENVAT covers central excise, customs and service tax, whereas State VAT covers Sales Tax. The scope of this study is mainly related to the State VAT.