Description

Government of India, after the efforts of many years, introduced state level value added tax in the year 2005 as a replacement for the state's sales taxes like turnover taxes, retail taxes and other related sales taxes. Value added tax is said to be the ultimate form of consumption tax and is superior to the states' sales tax operating in India. Value Added Tax is being paid on the value additions made by the business enterprises on their input purchases to make it useful for their customers. The value addition means bringing about the improvement in the goods purchased from other enterprises. The improvement in the inputs is made with the help of factors of production and the payment is made to them constitutes value addition. In other words all the expenditures incurred on the efforts of the factors of production or excess of value over and above the value of external inputs constitutes value addition and value added tax thus taxes this value created by an enterprise. Thus an enterprise does not pay the tax on its total turnover. It rather pays tax on the payment to all factors of production.