Sales Tax vs. VAT

People with opposing political beliefs and philosophies support different taxation systems. Two tax concepts that are opposing are the sales tax and the value-added tax or the VAT. These two systems directly compete with each other since they both concern the taxation of consumer goods rather than other areas like income or property.

Sales Tax

What is a sales tax? A sales tax is the one that consumers pay when purchasing an item. When the customers take the items to be purchases to the cashier, he/she adds up the prices of all items and adds a percentage of the total. Most stores include the sales tax to the price stated. Meaning, the real price of the item itself is lower.

VAT

Value-added tax is also a tax on consumer items, but instead of charging it to the consumers, it is charged to the producers. This is why it is sometimes called a goods and services tax. For each step in the production process, producers have to pay tax. Based on a VAT policy, consumers are not taxed directly on sales. However, they still shoulder the costs due to higher production costs.

Difference Between Sales Tax and VAT

The main difference between the two types of taxes is that sales tax is a direct tax, while VAT is indirect. When purchasing something, the consumer easily detects the sales tax. When the receipt is examined, there is a line separating the cost of the item and the sales tax on it. On the other hand, VAT is less transparent when buying products since the effects are wrapped up in the product’s purchase price.

Politics in Taxes

As of the year 2010, over 130 countries had been applying VAT policies. During the same year, President Barack Obama proposed a national VAT in the US. This was welcomed with a lot of opposition, who said that it was a way to channel money to the federal government. They believed that tax is unnecessary. Most of the liberals questioned the policy as well since it would affect the poor more than the rich.

One thought on “Sales Tax vs. VAT

  1. This is an interesting explanation, because actually in all the countries with VAT’s I know, here’s how it happens: producers pay the VAT, but if they sell the good to someone else, they can get it back. So practically, if a manufacuter sells a product to a wholesaler, and the wholesaler sells it to a retailer. Neither the manufacturer nor the wholesaler have to pay a VAT.

    The retailer does have to pay it, but all the receipts I’ve received so far in countries with a VAT clearly state that the goods you purchased have a let’s say 10% VAT on them, and that 10% of the price is VAT. So in practice, a VAT works the very same way as a sales tax. The customer pays a clearly stated amount which is included in the price. So first, the retailer receives the money and the they pay the VAT to the state.

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