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In the aforesaid example, ?value added' by B is only Rs. 40 (150?110), tax on which would have been only Rs. 4, while the tax paid was Rs. 15. In VAT, the idea is that B will pay tax on only Rs 40 i.e. value added by him. Then, it makes no difference whether a product passes through 5 or 10 stages or even 100 stages, as every person will pay tax only on ?value added' by him to the product and not on total selling price...
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In the aforesaid example, ?value added' by B is only Rs. 40 (150?110), tax on which would have been only Rs. 4, while the tax paid was Rs. 15. In VAT, the idea is that B will pay tax on only Rs 40 i.e. value added by him. Then, it makes no difference whether a product passes through 5 or 10 stages or even 100 stages, as every person will pay tax only on ?value added' by him to the product and not on total selling price...
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