Comparison of Value Added Tax (VAT) and Sales Tax

Aspect Value Added Tax (VAT) Sales Tax

Basis of
Taxation Applied at each stage of production and distribution. Imposed only at the final point of sale to consumers.

Calculated as a percentage of the value added at each stage of Calculated as a percentage of the final sale price of goods or
Tax Calculation production and distribution. services.

Borne by the end consumer but distributed across all levels of

Tax Burden production and distribution. Borne solely by the final consumer.

Allows businesses to claim credit for VAT paid on inputs, Businesses do not typically receive credit for sales tax paid on
Input Tax Credit reducing the effective tax burden. inputs.

Often requires more administrative effort to track VAT paid and

Administration collected at each stage. Relatively simpler to administer as it is only applied at the final sale.

Compliance may be more complex due to the need to maintain Compliance may be simpler as businesses only need to collect and
Compliance records of VAT paid and collected. remit sales tax at the final point of sale.

Commonly used in many countries around the world, including Sales tax systems vary widely between countries, and some
International the European Union. countries may not have a sales tax at all.