Background of Vat :
Vat in core concept in GST.
Concept of Vat (Value Added Tax) was first proposed in 1918 by German Industrialist Dr. Wilhelm von Siemens.
France was the first country to introduce VAT on 10th April 1954. European countries introduced Vat on goods and services, after 1977 when European Union made adopting VAT regime as condition precedent to joining European Union. Vat Rate in Europe varies between 19% to 25%.
China introduced Vat in 1984 and full fledged Vat was implemented in China in 1994. The rate is about 17%.
In Japan, there is ‘consumption tax’ of 5% [4% national levy and 1% regional levy]. About 130 countries have introduced Vat. USA has not introduced Vat since in USA, income tax is major revenue at Central level and there is retail tax at State level.
Concept of VAT was developed to avoid cascading effect of taxes. VAT was found to be a very good and transparent tax collection system, which reduces tax evasion, ensures better tax compliance and increases tax revenue.
Modvat (modified value added tax) was introduced in India in 1986 (Modvat was re-named as Cenvat w.e.f. 1-4-2000) at Central level. The system was termed as Modvat, as it was restricted upto manufacturing stage and credit of only excise duty paid on manufacturing products (and corresponding CVD paid on imported goods) was available.
System of VAT was introduced in service tax w.e.f. 16-8-2002.
Credit of excise duty and service tax was made inter-changeable w.e.f. 10-9-2004. Thus, partial integration of goods and service tax has been achieved at Union level.
Cenvat was not extended to sales tax, as sales tax is under jurisdiction of State Governments.
However, State Governments have introduced sales tax VAT after 2005.