What is the difference between VAT and normal Sales Tax? In what way VAT is advantageous than the latter?

Answer 1

VAT to my knowledge is sales tax, but various sales tax may have county or other municipal taxes added there to for a specified area

Answer 2

VAT is Value Added Tax, which is to be calculated on the value of the product sold. Sales Tax is calculated on 'Maximum Retail Price (Local Taxes Extra)' price of the product. If I am not mistaken VAT is uniform; whereas sales tax differs from state to state.

Answer 3

Difference between vat and normal sales tax


Vat is stands for value added tax and it is collected from customers. its very important for persons who r selling a product 2 their customers 2 collect vat and gives bill 2 the customer for details of selling. sales tax is deposited by sellers who sell their products 2 customers. now a days a rate is imposed by the government 2 the sellers for vat is 12.4%. we should have 2 pay each tax 2 the government..........

Answer 4

Let me explain it in short.
VAT is the amount of tax collected by the retailer from the purchaser of the commodity.
VAT is Value Added Tax. VAT is simple.
In VAT suppose a manufacture sells TV for Rs. 8000 and charges VAT @ 12.5% on it that is to say Rs.1000, then the total collection from the customer comes to Rs. 9000. He then has the liability of Rs. 1000 to be paid to the Govt.
Now for producing TVs he purchases raw material totaling Rs. 6000 and pays Rs. 750 as VAT thereby paying Rs.6750.
Now he will book cost of material at Rs. 6000 and claim VAT on inputs of Rs.750. Now he will pay Rs. 250 on the account of VAT to the government for this TV (Rs. 1000 - 750).
However in Sales Tax Regime suppose the tax comes to Rs. 1000 on sale of TV, then the manufacturer will have to pay Rs. 1000 as sales tax to the Govt. not allowing for the Sales Tax Rs. 750 paid on the inputs for manufacturing the TV.
This is called the cascading effect of sales tax. It is going to benefit all of of us once fully implemented.

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Answer 5

Vat is far more complex. It is paid on a firms sales and claimed on a firms purchases, the difference between the two is paid to the EU. It is open to massive frauds. Sales tax is paid by firms in US on sales with no offset against purchases, it is more secure and is a local State tax.

Answer 6

VAT has replaced sales tax.
Click on the link below for all about VAT
http://www.allindiantaxes.com/vat.php

Answer 7

Value added tax (VAT) is tax on exchanges. It is levied on the value added that results from each exchange. It differs from a sales tax because a sales tax is levied on the total value of the exchange. For this reason VAT is neutral with respect to the number of passages that there are between the producer and the final consumer.

VAT is an indirect tax, in that the tax is collected from someone other than the person who actually bears the cost of the tax (namely the seller rather than the consumer). To avoid double taxation on final consumption, exports (which are, by definition, consumed abroad) are usually not subject to VAT or VAT which led to such consequences is refunded.

VAT was invented by a French economist in 1954. Maurice Lauré, joint director of the French tax authority, the Direction générale des impôts, as taxe sur la valeur ajoutée (TVA in French) was first to introduce VAT with effect from 10 April 1954 for large businesses, and extended over time to all business sectors. In France, it is the most important source of state finance, accounting for approximately 45% of state revenues.

Personal end-consumers of products, consumers and services cannot recover VAT on purchases, but businesses are able to recover VAT on the materials and services that they buy to make further supplies or services directly or indirectly sold to end-users. In this way, the total tax levied at each stage in the economic chain of supply is a constant fraction of the value added by a business to its products, and most of the cost of collecting the tax is borne by business, rather than by the state. VAT was invented because very high sales taxes and tariffs encourage cheating and smuggling. It has been criticized on the grounds that it is a regressive tax.

A sales tax is a state or locality imposed percentage tax on the selling or renting of certain property or services. The fraction of the total taxes collected as sales taxes typically varies from about 25% to 50% of government revenue. Nearly all sales taxes have a large list of goods and services, varying from state to state, that the tax is not collected on. Because the tax is collected from the customer, it is a consumption tax. In the United States, it is nearly always explicitly added on and not included in the price, a notable exception is sales taxes on gasoline. If a person purchases property from an out-of-state seller, sales tax is not due, but rather the customer may owe a so-called use tax. For example, if a person purchases a computer from a local brick-and-mortar retail store, the store will charge the state's sales tax. However, if that person purchases a computer over the internet or from an out-of-state mail-order seller, sales tax may not apply to the sale, but the person could possibly owe a use tax on the purchase. Because of exclusions on what is taxed and not taxed the typical consumer will pay on average about 1/3 of the listed sales tax on all his/her expenditures, i.e. a 7.5% tax will collect on average about 2.5% of a persons income.[citation needed] The sales tax revenues are typically split into several fractions going to the state, schools, counties, cities, public transit and possibly other jurisdictions. The size and split of these fractions vary significantly from state to state except in the states that do not have a sales tax. Additional taxes like Hotel tax, Rental car use fee, etc. that are really disguised sales taxes are imposed typically on non voting visitors to a given location.

Ideally, a sales tax (under whatever name it's called) is fair, has a high compliance rate, is difficult to avoid, is charged exactly once on any one item, is simple to calculate and simple to collect. A conventional or retail sales tax attempts to achieve this by charging the tax only on the final retail transactions, not on intermediate businesses buying raw materials for production or finished goods for resale. This prevents so-called tax "cascading" or "pyramiding," in which an item is taxed more than once as it makes its way from production to final retail sale. Sales tax collection is well established in nearly all retail establishments and typically has a high tax compliance record in the United States. Many consider the sales tax as being nearly ideal since it taxes consumption but allows savings to grow untaxed.

Sales taxes are considered by some as regressive, that is, low income people tend to pay a greater percentage of their income in sales tax than higher income people, because they tend to spend a higher percentage of their income on taxed items. Others consider them one of the best taxes since they only tax consumption. In many locations items such as food, or prescription drugs are exempt from sales taxes to alleviate the burden on the poor. The loss of income is made up in other tax sources.

A related type of tax is the value-added tax or VAT. It is a system in which all businesses remit taxes on their sales but they are also refunded the amount of VAT remitted by their suppliers. In addition to avoiding cascading, under VAT there is no need for government to determine which sales are taxable and which are not, since all sales--retail, wholesale and intermediate--are taxed. Some or all of these taxes may be refunded but it generates a lot of paperwork (and income). The VAT paperwork can be burdensome but it remains a major source of tax income for most European Union, Mexico and other countries which charge on average a 15-25% VAT rate. Canadian sales taxes range from 0% in Alberta to an effective 10.6% in Prince Edward Island where sales tax is also applied to the federal Goods and Services Tax.

Most countries in the world have sales taxes or value-added taxes at all or several of the national, state, county or city government levels. Countries in western Europe, especially in Scandinavia have some of the world's highest valued-added taxes. Norway, Denmark and Sweden have the highest VATs at 25% although reduced rates are sometimes used.[citation needed] In some countries, there are multiple levels of government which each impose a sales tax. For example, sales tax in Chicago is 9%, consisting of 5% state, 2.25% city, 0.75% county and 1% regional transportation authority and that in Baton Rouge, Louisiana is 9%, consisting of 4% state and 5% local rate.1 However, there is no nationwide sales tax in the United States. Since the 1990s, the idea of replacing the income tax with a national sales tax has been floated in the United States; many of the actual proposals would include giving each household an annual rebate, paid in monthly installments, equivalent to the percentage of the tax (which varies from 15% to 23% in most cases) multiplied by the poverty level based on the number of persons in the household, in an effort to reduce the sales tax's inherent regressivity. While many political observers consider the chances remote for such a change, the FairTax Act has attracted more cosponsors than any other fundamental tax reform bill introduced in the House of Representatives.