The difference between the Value Added Tax and the sales tax

Also known as the “Goods and Service Tax”, Value Added Tax is totally different from sales tax charged on exchanges. Value Added Tax is a sort of indirect tax that is charged on goods and services at different production levels. This tax is also applied to import goods with a similar rate of local production. This taxation system is picked out by lots of European and non-European countries. The neutral and clear nature of taxation has motivated VAT to come up as vigorous revenue producer in such countries.

On the other hand, by making comparison with VAT, sales tax is the percentage of the revenue applied to the retail sales of goods. Sales tax is different from VAT because it is only imposed on the entire purchased value of goods.

Contrary to the traditional sales tax system, the VAT system can efficiently communicate the issue of decreasing and input tax credit that brings an automatic rise within the consumer price level. The VAT is safe from the incident of decreasing because it is only levied on additional values in different production levels. The entire burden is borne by the end users.  Although this is an indirect form of taxation but is very much coherent. It is easy to understand because of its transparency. To make the distinction between these two types you must take help from tax professionals and accountants.

The economic impact of VAT relies on ultimate prices of the goods and services whereas the impact of sales tax falls on the terminal prices to the end users. The VAT system needs to have an efficient accounting. To cope with this weakness, same tax will be charged to each member involved in the process of production of a particular good or service. The application of this tax would stay unbiased in the position of the individual within production cycle.

Tax evasion is frequent in sales tax whereas the VAT system is free from this issue. Sales tax is usually thought as a burden if the proportion charged goes beyond 10 percent and is termed as an evasion by the end users who are connected with the purchase of such goods via the internet or through other means such as by a dealer or in wholesale. Evasion is impossible to VAT and is termed to other fraudulent tools like that of carousel fraud. This is one amongst the distinguished practices of theft for VAT. This is avoided in those countries where the goods movement between jurisdictions is free from Value Added Tax.

The Value Added Tax is one amongst the latest systems of the world’s economy and is globally accepted and is implemented in lots of countries. However, Value Added Tax comprises limitations in developing countries as like that of India. The per-governance of low per capita income in such countries comprises difficulties for government to increase revenue via income taxes. In such countries, as compared to the Value Added Tax, sales tax work as a good revenue earner for the government.

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And at last Today, it takes more brains and effort to make out the income-tax form than it does to make the income.  ~Alfred E. Neuman


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