Problem1. Are tax incentives inherently undesirable or more simply vulnerable to misuse? Discuss this question by considering arguments for and against the employ of tax incentives.
Luther is about to commence business as the plumber, and seeks your aid regarding problems with Value Added Tax. Luther has acquired a contract with a local builder to install all the plumbing fittings, sanitary ware, and so forth. for a new housing development. Luther’s only other income will be from small repair jobs which he will perform in the evenings. Luther estimates which his receipts will total Rs2.5M in the first year of business with his only major expenditure being the purchase of an estate car which he estimates will be used 60% for the business and 40% for private motoring.
Required:
Question1. State what advice you would give to Luther regarding whether or not he has liability to be registered for VAT and describe fully the rules which govern registration.
Question2. State with reasons whether Luther has to charge VAT on the work he performs.
Question3. Describe how Luther should deal with the VAT on:
(i) The materials he purchases for the building contract and repair work performs;
(ii) The purchase of motor car;
(iii) The petrol bought for motor car.
Question4. Explain clearly why it might be to a person’s advantage to register voluntarily as taxable person for VAT purposes when there is no legal requirement for him to do so.