Difference between VAT and Sales Tax

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  • Sales tax is usually charged on the total value of a commodity once the sale occurs. VAT, on the other hand, is a tax charged on the product at each level of the production or distribution channels for every value added to the commodity at that level.
  • Due to the nature of points at which these two taxes are charged, sales tax is a single point tax whereas VAT is a multiple point tax. A sale is only done once for a single product, but value addition for a product can be done in several steps.
  • Sales tax is not presented with an input tax credit which is allowed in VAT. VAT payers are able to claim the VAT they pay on their inputs, but sales tax cannot be claimed.
  • The tax burden created by the sales tax is borne by the buyer while the VAT burden is rationally shared along the chain of distribution.
  • VAT is levied on the value added while the sales tax is charged on the whole value of the product.
  • The cascading effect present in sales tax does not exist in VAT interactions.
  • The nature of VAT makes it impossible to evade the tax since it is applied at the points of production and distribution. However, sales tax can be easily evaded by not disclosing the sale.
  • Sales tax is easier to calculate and maintain because it is usually one sided. VAT is on the contrary and requires the maintenance of proper accounts for input and output VAT.

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