An indirect tax, such as sales tax, value added tax (VAT), or goods and services tax (GST)) is a tax collected by an intermediary, such as a retail store from the person who bears the ultimate economic burden of the tax, such as the buyer of the consumer goods. An indirect tax may increase the price of a good so that consumers are actually paying the tax by paying more for the products. Examples would be tax on fuel, liquor, and cigarettes. Thus, an indirect tax is such which can be shifted or passed on, and invariably, the end customer has to bear the burden.
Tax is high on the agenda for retail and consumer goods companies. Increasingly retail and consumer companies are focusing on maximizing value from their brands as part of strategic reviews of their businesses. Tax is an important part of this review. Key tax issues for retail and consumer goods companies span insurance issues and which includes a global product liability and recall team.
Some people feel excise taxes can achieve social goals such as lowering consumption of alcohol. The consumers can avoid taxes by avoiding consumption, but this is not the solution. These taxes are regressive, which means that everyone pays the same dollar amount regardless of wealth. The taxes on necessities such as utilities and gasoline impose a much heavier burden on the poor.
Goods and Services Tax (GST)
It is a consumption tax levied on value added. In contrast to sales tax, VAT is neutral with respect to the number of passages that there are between the producer and the final consumer; where sales tax is levied on total value at each stage, the result is a cascade (downstream taxes levied on upstream taxes). Value added taxation has been gaining favour over traditional sales taxes worldwide. In principle, value added taxes apply to all commercial activities involving the production and distribution of goods and the provision of services. VAT is assessed and collected on the value added to goods in each business transaction. Under this concept the government is paid tax on the gross margin of each transaction. Revenues from a value added tax are frequently lower than expected because they are difficult and costly to administer and collect. In many countries, however, where collection of personal income taxes and corporate profit taxes has been historically weak, VAT collection has been more successful than other types of taxes.
Effect of Tax on Consumer Goods
Goods and Service Tax is a tax on goods and services, which is leviable at each point of sale or provision of service, in which at the time of sale of goods or providing the services the seller or service provider can claim the input credit of tax which he has paid while purchasing the goods or procuring the service. The sellers or service providers collect the tax from their customer, who may or may not be the ultimate customer, and before depositing the same to the exchequer, they deduct the tax they have already paid. The net effect is that dealers charge GST but do not keep it, and pay GST but get a credit for it. This means that they act essentially as collecting agents for the Government. The ultimate burden of the tax falls on the last and final consumer of the goods and services, as this person gets no credit for the GST paid by him to his sellers or service providers.
Please post your comments below on
(a) The current systems for VAT collection and how they can be improved.
(b) What standard legal structure should be for such systems, and
(c) How should such a system be developed in light of increasing cross-trading of consumer goods between different countries and between consumers themselves.