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Which one of the following is not a feature of "Value Added Tax"?


1. It is a multi-point destination-based system of taxation.
2. It is a tax levied on value addition at each stage of transaction in the production-distribution chain.
3. It is a tax on the final consumption of goods or services and must ultimately be borne by the consumer.
4. It is basically a subject of the Central Government and the State Governments are only a facilitator for its successful implementation.

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Correct Answer - Option 4 : It is basically a subject of the Central Government and the State Governments are only a facilitator for its successful implementation.

The correct answer is option 4.

  • Value-added tax (VAT) :
    • It is a type of indirect tax levied on goods and services for value-added at every point of production or distribution cycle, starting from raw materials and going all the way to the final retail purchase.
    • VAT was introduced on April 1, 2005.
    • Under it, the amount of value addition is first identified at each stage, and then tax is levied on the same.
    • Ultimately, the end consumer has to pay the complete VAT while buying goods; buyers at earlier stages of production receive reimbursements of tax they have paid. Because the consumer bears the entire tax, VAT is also a consumption tax.
    • Each state has its own VAT laws for proper implementation and levying. Different states apply different VAT rates according to their implied laws. 
      • VAT, being a 'tax on sale or purchase of goods within a State' is a State Subject by virtue of Entry 54 of State List of the Seventh Schedule of the Constitution of India. Since VAT/Sales tax is a State subject, the Central Government has been playing the role of a facilitator for the successful implementation of VAT. Hence, option 4 is not correct.
    • The main aim behind the introduction of VAT was to eliminate the presence of double taxation and the cascading effect from the then-existing sales tax structure.
      • A cascading effect is when there is a tax levied on a product at every step of the sale.
      • The tax is levied on a value that includes tax paid by the previous buyer, so the consumer ends up paying tax on already-paid tax.
    • Has GST totally subsumed VAT?
      • To completely eliminate the cascading effect of taxes and to make the indirect tax structure simpler, the union government introduced the Goods and Services Tax (GST) in July 2017.
      • Though GST replaced VAT on most goods, some goods are still not covered under the new regime. VAT continues to be the tax levied on such goods.

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