Friday, 23 March 2018

What is The Difference Between VAT and Sales Tax ?

Taxes are a source of income for any governments. While there are taxes for a different variety of things that be paid by a variety of people, a possibility is that as a citizen pays at least one tax or another. The Sales Tax and Value Added Tax (VAT) are two such taxes.

A sales tax is also an expenditure tax, just like the VAT. For the general public, there is two type of VAT and there may be no observable difference between how the two types of taxes work, but there are some major differences.

In many other countries, sales taxes are only imposed on transactions include goods. In addition, sales tax is only allowed on the final sale to the consumer. This opposite with VAT which is applied to goods and services and is charged throughout the final sale, including on the supply chain.

VAT is also applied to imports of goods and services Tax so as to ensure that a level  Deliverer field is maintained for domestic providers of those same goods and services. Many countries prefer the VAT over sales taxes for a many of reasons Recently VAT in UAE has been launched on 1 Jan 2018.

Importantly, VAT has contemplated a more sophisticated perspective to taxation as it makes businesses serve as tax collectors on behalf of the government and cuts down on bad reporting and tax evasion.

The Sales Tax and VAT  both are consumer taxes, that means that they have to be paid whenever one purchases a product that is meant to be consumed or used. However, sales tax is a type of direct tax, while VAT is an indirect tax.

That's means, that sales tax is directly applicable and is directly calculated on the selling price, while VAT  calculated indirectly on every stage of manufacturing.

Comparison between Sales Tax and Value Added Tax (VAT):

  Sales Tax Value Added Tax (VAT)
Description A government tax allow for sales of certain goods and services A government tax levied for goods purchased
Type Direct Tax Indirect Tax
Nature Single point tax Multi point tax
Charged on Sales of few goods and services Value added to the product at every stage of manufacturing
Charged to The final customer in the supply chain, the end user The final customer or reseller
Levied by Levied by the Government Levied by the Government
Levied on Total Value Value Added
Calculated on Calculated on the selling price of the product Calculated on the purchase price of the product.
Calculated as A percentage of the taxable price of the sale Calculated on the value that is added to the product at every stage of manufacturing
Calculation Easier, it is simple and easy to calculate. Complicated, as proper accounts should be maintained at each stage of manufacturing for the product

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