Value added tax (VAT) is a type of indirect tax that is imposed on goods and services. Sometimes, when the government operates on a budget surplus or wants to increase its revenue in order to finance its budget deficit. A question that arises is whether value added tax has been a boon or misery for a developing country like India. Around 136 countries in Asia have recognized the importance of value added tax. In one of the most large scale reforms of the country’s public finances in over the past 50 years, India has finally agreed the launch of its much delayed value added tax from 1st April, 2005 at a rate of 12.5%. The tax rate is fixed by meeting of different state level Finance Minister, in New Delhi, designed to make accounting more transparent, to cut short trade barriers and boost tax revenues. According to Chanakya, “A government should tax its people like a shepherd shears a flock or a bee gets nectar from a flower”. The tax is levied not only on products but services that is the source of revenue for the government to plan for development activities in the country. Since, India is a developing country, the main source for revenue is generated through tax levied on the individual on the purchase of goods or services. The government imposes taxes and duty charges on the fellow people for fulfilling the infrastructural, technological, entrepreneurial demand of the country. Whether the imposition of high tax on the society is favorable or unfavorable in the present scenario to meet the technological and infrastructural demand? It has been identified that rural people are charged more tax than urban people due to subsidized rate provided to them in food products, transportation, electricity, water etc. for these facilities they are charged indirectly from their source of income like agricultural and allied activities. The question that arises is: do value added taxes promote prosperity and well being for the common men? VAT is omnipresent in all goods and services provided to the consumer. The paper aims at presenting the importance of value added tax in the Indian society, its impact and the future prospect for product and service industry in India. The data collected is secondary based from the governmental publications and standard for chartered accountants.
Key words: Value added taxes levied, socio-economic effects, role of intermediaries, Indian society, calculation of value added taxes.
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