Discuss the merits and demerits of value added tax
Answers
Answer:
Advantages Of Value Added Tax (VAT)
Following are the advantages of VAT:
1. As compared to other taxes, there is a less chance of tax evasion. VAT minimizes tax evasion due to its catch-up effect.
2. VAT is simple to administer as compared to other indirect tax.
3. VAT is transparent and has minimum burden to consumers as it is collected in small fragments at various stages of production and distribution.
4. VAT is based on value added not on total price. So, price does not increases as a result of VAT.
5. There is mass participation of taxpayers.
Disadvantages Of Value Added Tax (VAT)
Following are the disadvantages of VAT:
1. VAT is costly to implement as it is based on full billing system.
2. VAT is relatively complex to understand. The calculation of value added in every stage is not an easy task.
3. To implement the VAT successfully, customers, need to be conscious, otherwise tax evasion will be widespread.
Answer:
due to catch-up effect of value added tax,it minimises avoidance.Huge amount of revenue is generated on a low tax rate through VAT,as the VAT is collected in small installment so the consumers has minimum burden . VAT is a neutral tax so it can be imposed on all types of businesses