Tata Motors is a major player in automobile manufacturing in India. It has three

ID: 1190133 • Letter: T

Question

Tata Motors is a major player in automobile manufacturing in India. It has three different

manufacturing units that specialize in manufacturing different transportation-related prod-

ucts, such as trucks, engines and axles, commercial vehicles, utility vehicles, and passen-

ger cars. The company buys products that fall under different sections of the Indian gov-

ernment VAT tax code, and therefore the products have different VAT rates. In one

particular accounting period, Tata had invoices from four different suppliers (vendors A,

B, C, and D) in the respective amounts of $1.5 million, $3.8 million, $1.1 million, and

$900,000. The products Tata purchased were subject to VAT rates of 4%, 4%, 12.5%, and

22%, respectively.

(a) How much total VAT did Tata pay to its vendors?

(b) Assume that Tata’s products have a VAT rate of 12.5%. If Tata’s sales during the period

were $9.2 million, how much VAT did the Indian Treasury receive from Tata?

(a)

Total VAT paid ($million) = 1.5 x 4% + 3.8 x 4% + 1.1 x 12.5% + 0.9 x 22%

= 0.06 + 0.152 + 0.1375 + 0.198

= 0.5475 million

= $547,500

(b)

VAT received from Tata sales = $9.2 million x 12.5%

= $1.15 million = $1,150,000

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