Difference Between Sales Tax and VAT

A Comprehensive Guide on the Difference Between Sales Tax and VAT!

There are many kinds of tax that belong to indirect tax. Value-added tax and sales tax are among these types as well. The focus of today’s topic is on the Differences between sales tax and VAT. A country’s economy grows and develops through tax.

According to experts, new taxation policies are recommended to be introduced every year. It has been noticed that sometimes new tax policies with alterations have drastic effects on the economy, so, it is better to always have a plan B or balance methods.

To ensure how to avoid negative effects on the progression of the economy’s growth, this will help. The sales tax and Value Added Tax are known to be the prominent tax structures. Both of them are to be applied to products and services. The question that arises here is what is the prominent point that makes them different.

A good analysis of a country’s growth in the economy can be predicted by judging the taxation policies. Before we elven further in the discussion, let’s have a look at the points of discussion in today’s article.


Introduction of Sales Tax

Sales tax is a kind of tax structure which refers to the tax that is charged on the total value of a product. This happens at the time of sale. This tax is completely levied on the customers.

This is charged for the services and products used by the customers. The government is responsible to impose this tax o the consumers. The process to collect sales tax is simple and easy. The customer purchases a good or service. The retailer collects the tax and then gives it to the government.

Moreover, this is important to know that the liability of sales tax is associated with every business in the market. As per the economists, the sales taxes are never found to be harmful to the growth of the economy. Sales tax and its percentage do not vary as per the income of the customers.


What Is Value Added Tax (VAT)?

VAT is an abbreviation of Value Added Tax. This refers to a multi-staged taxation system. It is different from sales tax because it is added at the production stage. At the production level, whenever, a value is added VAT is charged as well.

Just like sales tax, VAT is also paid by the consumers. However, it is incremented at every production level while the product is in process of making. Moreover, VAT is not charged in all places. Like export products are exempted and free from VAT charges.


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Differences Between Sales Tax and VAT

VAT and sales tax are prominent tax structures. The major points that become the reason for differences between sales tax and VAT include the following:

  • The application of tax is one of the prominent reasons to highlight the difference between VAT and sales tax. VAT is known to be charged at every single level of production. However, the sales tax is charged at the time of sale and that too is on the total value of the product.
  • Sales tax refers to the single point tax paying system, whereas, VAT is known to be a multi-stage taxation system. This is because VAT is charged on every level of production.
  • The burden of VAT is distributed among different entities. If you observe the value-added tax from the level of manufacturing to the stage of end-user. However, sales tax is only charged to the end-user. The burden is not shared, unlike VAT.
  • It is possible to evade sales tax but VAT can’t be evaded.


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Now that you have developed a better understanding of the Differences between Sales Tax and VAT, we can finally sum up the discussion by saying that VAT and sales tax are useful taxation structures. It is good to note that sales tax is not found to be harmful to economic growth. However, VAT has the ability to disturb low-income taxpayers in the country.

We hope these few minutes of reading will help you to make smart decisions that will further go in your favor.


Disclaimer: The information about the Differences between Sales Tax and VAT provided in this article is general in nature and does not intend to disregard any professional advice.


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