What is the Difference Between Sales Tax and VAT ?
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Answer Posted / r.r.jagadeesan
There are different methods of taxation in various states
and various countries in the world. This reply is posted
from Tamil Nadu, India.
The Government of Tamil Nadu has levied tax under the Tamil
Nadu General Sales Tax Act 1959. The Tamil Nadu General
Sales Tax was levied at various stages and various points.
The different points of taxation are 1. First Purchase 2.
First Sale, 3.Last Purchase. 4. Second Sale, 5. Resale.
Certain goods procured from the manufacturers or
agriculturists were treated as first purchase. Certain
goods manufactured or imported from other states or other
countries were sold locally and such sales are said to be
first sales. If such goods were purchased by other dealers
or vendors were sold by them locally is called second and
subsequent sales. If goods were levied at the point of
first sale subsequent sales are not liable for taxation as
it were treated as second sales. If the goods were
purchased from the dealers located outside the state such
purchases were called as Interstate Purchases and the goods
sold the dealers located outside the state were called
Interstate Sales. If goods were purchased locally and used
for manufacture of other end product or sold the dealers
outside the state such transactions will be treated as Last
purchase for certain commodities. If the tax suffered
goods were sold locally the sales were treated as Resale
and Resale Tax was levied on such sales. The raw material
used for manufacture of new end produce loses its
originality and hence fresh tax was levied on the new end
product without considering the sufferance of tax on raw
materials. In addition to that there are certain a
commodity on which no tax has been levied is called
Exempted. This method of taxation was called General Sales
Tax i.e. GST and CST.
The Government has introduced new method of Taxation called
Value Added Tax. Under Value Added Tax Act, each and
every point of sale Value added Tax Rate will be calculated
on the turnover each time and the difference of Tax is
called Value Added Tax i.e. on the value added sales
turnover. Tax suffered on the raw Materials used for
manufacture of an end product will be deducted as input tax
credit from the output tax payable and the difference of
tax on the sale value will be calculated. For example if a
dealer purchases goods to a value of Rs. 10000.00 paying
tax of Rs. 1250.00 (12.5% Vat) the bill amount will be Rs.
11250.00. If the dealer pays freight, loading and
unloading charges and adds certain amount of profit and
sells the same for an amount of Rs. 15000.00 he will
collect VAT of Rs. 1875.00 from the buyer and he will pay
to the department only Rs. 625.00. If the dealer
purchases goods from other states and from other countries
such goods if sold will be treated as first sales and no
CST will be allowed for deduction. Under Value Added Tax
Act the sales are categorized as 1.Exempt Sales, 2.First
Schedule sales, 3. Zero Rated Sales 4. Sales effected
through Agents/Branches in other states and purchases as
categorised as 1.Capital Goods, 2. Exempted Purchase,
3.Import, 4. Interstate purchase, 5. Local Purchase input
(First Schedule) 6. Stock receipts from Head
Office/branches/principals outside the State 7. Purchases
effected through Agents/Branches and 8. ustrial Input
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