What Is Mod VAT?

Mod VAT, more commonly known as MODVAT, is an acronym for Modified Value Added Tax. MODVAT is a tax scheme used in India that helps manufacturers to avoid paying excise tax on both the imports of raw goods and the export of final products.

The Excise Tax on Imports

When a provider of raw goods or parts imports its wares into India to be sold to manufacturers, it is charged an excise tax. To recoup this cost, the provider will add the amount it was taxed to the price it charges to manufacturers.

The Excise Tax on Exports

Indian manufacturers are also required to pay an excise tax on goods they export. Thus, a manufacturer importing raw goods or parts from another country to build a product for export will, in essence, be paying the excise tax twice.

How MODVAT Helps

Under MODVAT, manufacturers of most goods can receive credit for paying extra to recoup their suppliers' excise tax amount. This credit amount is deducted from the excise tax paid upon export, severely lessening a manufacturer's tax burden.

References

• Bharat Petroleum: MODVAT & Other Tax Schemes
• India Finance and Investment Guide: Modified VAT (MODVAT)