Difference between Sales Tax and VAT (Value Added Tax)

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So, many people have questions regarding the difference between Sales Tax and VAT.

This is due to the fact that in countries where Sales Tax is applicable people are generally unaware of V A T whereas in the countries where VAT is applicable people are unaware of Sales Tax.

In simple words, Sales Tax is basically applicable on the goods and services on the retail price that is the end price whereas VAT on the other hand is applicable on all the stages of production of those goods that is manufacturing stage, distribution stage, wholesale stage, retail stage etc.

Unlike VAT, Sales Tax is imposed on the total value of goods and services purchased.
The Sales Tax is collected one time by the retailer whereas the Value Added Tax is collected by all the sellers at various stages of production.

Although, the burden of tax in both Sales Tax and VAT falls upon the end consumer, however, the payment of these taxes is made by all the purchasers in VAT as compared to single end consumer in the case of Sales Tax.

The rate of Sales Tax is generally high as compared to the rate of VAT due to the fact that the Sales Tax is applicable one time generally where as the VAT is applicable on various stages of value addition.

Both the taxes are indirect of nature. Also, the treatment of adjusting Input and Output taxes is also similar in both Sales Tax and VAT.

It is generally believed that the model of VAT as compared to Sales Tax is more effective as it brings all the stages of value addition under tax net where as in Sales Tax certain stages remain unaccounted for.

In general the rate of Sales Tax in various countries remains between 17% to 25% where as the rate of VAT fluctuates between 5% to 12%.

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