Question

1. In respect of VAT, what is the paradox of exemption?

Answer 1

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Introduction

There are so many paradox of exemption in respect of VAT, It can be starting from the various norms that are implementation by the statutory body of Government and its related rules and regulation

Explanation

1. As general rules VAT applies its own terminology. The general meaning of an exemption, in an economic sense, is that a certain supply of a good or service is fully relieved from tax and that is not the case under a VAT exemption within the context of VAT only means that no tax is due on sales of the exempt goods and services.
2. However, tax paid on procurements (input VAT) is only creditable when and in so far as it relates to taxable outputs. Input VAT on procurements that relate to exempt sales can, therefore., under this approach not be recovered.
3. Unrecoverable VAT becomes part or the cost base of the exempt business, and it is uncertain whether the exempt business will he able to shift the tax forward in his sales price. In this sense, the VAT is a paradox.
4. A taxed business is, in fact, relieved from tax due the input-VAT credit system, whereas an exempt business is taxed because the credit system cannot be applied.
5. Playing with the different meaning of the word exemption under VAT and in the general economic sense, we could formulate the VAT paradox in following ways: those who are taxed are actually exempted, and those who are exempted are actually taxed.
6. So an exemption does not provide full relief from the tax. In fact, only the value added of the exempt business is relieved from tax, but all its procurements, including capital goods, are taxed.
7. An exempt trader is put in a position similar to that of a private consumer. Exempt businesses are, generally, not required to keep records for VAT, which would simplify administration for the tax authorities and trader alike.
8. However, no simplification will actually occur for businesses involved in both taxable and exempt transactions. Moreover, many of the book-keeping and recording requirements may be demanded anyway for income tax purposes.
9. In Section 8.2.43, of economic policy, the economic effect of exemptions is demonstrated on the basis of a numeric example.

Consideration for Exemptions

There exist only a limited number of arguments for exemptions under a VAT.59. One group of goods and services are exempted for the purpose of combating the alleged ranges.Severity of consumption taxes, causes to make the tax somewhat progressive. It does not matter whether the VAT actually is regressive, which is

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