Effect of Value Added Tax on the overall economic development

Effect of Value Added Tax on the overall economic development

Effect of Value Added Tax on the overall economic development

VAT is a tax, which is charged on the increase in value of goods and services at each stage of production and circulation. VAT is becoming popular throughout the world because it has some advantages. Value Added tax refers to the tax applied to value-added as per prescribed rate. In fact, it is a multi-stage indirect tax imposed on the value added at different stage starting from production to distribution process. Value Added Tax plays important roles on the overall economic development.

(a) Encourage personal savings and investment: One of the best reasons for instituting a value-added tax is that the system encourages personal savings and investment.

(b) More revenue potential: VAT has more revenue potential than other alternative indirect taxes.

(c) Help to make up revenue: VAT system acts as a supplementary tax that can help to make up for revenue lost due to income tax evasion.

(d) Economic advantages: Since VAT is carried through the retail level, it offers all economic advantages of a tax that includes the entire price within its scope, at the same time the direct payment of tax is spread out.

(e) Governmental opportunity: VAT gives the government the opportunity to bring back into the tax system all those persons and entities who were given tax exemptions in one form or another by the previous resist.

(f) Cross-audit feature: Tax charged by one firm is reported as a deduction by the firms buying from it only on the final sale to the consumer is there no possibility of a cross audit.

(g) Control mechanism: VAT may be selectively applied to specific goods or business entities as a control mechanism.

Finally, Value Added Tax it more equitable and transparent.

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