Differentiate between VAT and Sales Tax

Finance & Accounting

  • - by   Mindcypress
  • Jul 28, 2021
Differentiate between VAT and Sales Tax

VAT stands for Value Added Taxes. Both VAT and sales tax are forms of indirect charge on services and goods. They are paid by the end customer and not the business selling it. Corporates often get confused between the two, making it necessary for their employees to have the skills and knowledge related to handling such tax charges. MindCypress assists organizations in hosting physical or virtual training sessions for VAT.

This blog will assist you by explaining what are the charges and the main differences between VAT and Sales Tax. So, let’s begin with VAT first.

What is Value Added Tax (VAT)?

VAT is a specific consumption tax that is inflicted upon every stage of the supply chain process. This means money is charged right from the manufacturer selling its raw material to a factory. Further, the factory sells the finished product to the wholesaler, which then goes to the retailers before finally reaching the consumer.  The buyers at earlier stages of the production get reimbursed by the ensuing buyer, and the retail consumer pays VAT.

 What is Sales Tax?

Sales tax is the final charge in the supply chain process and is indirect in nature. It means, the consumption tax is imposed on the consumers at the point of sales, by the retailer and then passed on to the government. Sales tax is a certain percentage of the product’s original value. According to the jurisdiction, a business is accountable for sales taxes that can be a physical location, an employee, or an affiliate, depending on the laws in that jurisdiction.

Differentiate between VAT and Sales Tax

Although VAT and Sales tax are both parts of the taxation system in India. Several features differentiate the two categories of taxes. Here is a list of how these taxes are distinct from each other.


  • Paid By: VAT is to be paid by both producer as well as a consumer while sales tax is levied entirely on consumers

  • Calculation: Calculation of VAT is complex because of the various layers of buying and selling transactions involved while that of sales tax is straightforward

  • AdmissibleVAT is levied on various stages of production while sales tax is applicable on the final value of the purchase

  • Evasion: VAT is able to avoid evasion successfully while sales tax is easy to fiddle with

  • Production Value: The VAT model increases the cost of production to businesses which in turn can lead to a higher burden on purchasers whereas sales tax is easily handled

  • Government Profit: VAT tends to profit the government more rather than sales tax. This is because tax from each and every wholesale transaction also reaches the government unlike sales tax where just the end amount of tax is levied


The chances that taxation can be charged for taxes and increases commodity price. Sales tax is less harmful to economic growth, VAT can create chaos on low-income taxpayers.

Further, the two taxes do not depend on a person’s wealth or income, and most probably rates are unchanged. Now you have a basic understanding of the difference between sales tax and VAT, it is time for you to enroll in a training session for VAT. Contact MindCypress for more information on training and certification.

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