Difference Between VAT and Tax?
If you are unaware of the VAT and Tax and are confused whether they are the same or different you are here at the right place. VAT and tax both are forms of levies. These are imposed by governments and are different in their meanings, purpose, and application.
Here in this article, we will look at the difference between VAT and Tax, their applicability, and other relevant information so you can compare both VAT and tax and understand their basic traits. Let us now shed light on these levies.
What is Tax?
Tax is the amount of money the person or organization gives to the government. The government collects this money for welfare measures, administration, security purposes, functioning, and policing. There are many different forms and names of the tax.
One of the most common forms of taxes is income tax which means the person who is earning money pays a part of that earned money to the government. Tax is a compulsory and mandatory financial charge that is imposed on the people by the government.
Moreover, taxes are imposed on profits, property, goods and services, income, imports, and capital gains. They can be direct and can be indirect. Direct taxes include income tax and indirect taxes include sales tax.
What Is Value Added Tax?
Value Added Tax is a type of indirect tax. It is imposed on goods and services that are usually bought and sold in the country. Well, it is one of the most common types of consumption tax found in the world.
Value Added Tax VAT is implemented in more than 150 countries in the world including 29 European Union members, Singapore, Malaysia, Canada, Australia, and New Zealand. It is charged at every step of the supply chain process.
In South Africa, VAT is 15% of with exemption for some products.
Although it is levied on every step of the production and distribution process, only the consumer bears the final burden of the tax. Well, until now we have understood what Value Added Tax and tax independently are, let us now look at the key differences between them.
Key Differences Between Tax and VAT
- Tax can be of different forms, particularly direct and indirect. Alternatively, VAT Value Added Tax tax is a type of indirect tax.
- Tax is paid only by the individual or business. Either the one who is earning is eligible to pay tax or the business owners pay the tax in the country. Whereas businesses collect VAT on behalf of the government and then pass it on to the end consumer.
- Tax is levied on multiple activities including property profits, income, capital gains, and goods and services. At the same time, VAT is particularly applied to value-added tax at every step of the country’s distribution and production process of goods and services.
- Moreover, tax only is applicable after the goods and services are made to the final consumer. Alternatively, VAT is collected by sellers at every step in the supply chain process.
- Some particular things are exempt from VAT in the country. Alternatively, tax is applied to every product in the country.
What is the other name of the VAT tax?
VAT stands for Value Added Tax. It is applicable and is functioning in more than 150 countries all around the world. Moreover, some different acronyms and names are used in different countries when it comes to value-added tags including GST, IVA, TVA, IPI, ICMS, and IS.
What is called VAT?
VAT is a Value value-added tax which is a type of tax applicable to services and goods that are sold to consumers. It is charged by the central government and is paid by the producers of goods and services. But keep in mind it is finally imposed on end consumers.
What is the key difference between VAT and tax?
The basic difference between VAT and tax is that the tax can be direct or indirect whereas VAT is only the form of indirect tax. Moreover, taxes are paid by the individual or business owners whereas VAT is only paid by the end consumer. Furthermore, VAT is particularly applied to value added at every step of the distribution and production process whereas taxes are levied on multiple products and services including profits, income, and property.
Hopefully, you have understood the key differences between VAT Value Added Tax and tax. VAT is an indirect form of tax that is generally referred to as a type of general consumption tax whereas tax is a compulsory financial charge imposed on individuals within the country by the government.
Other differences between VAT and tax are mentioned above. Hopefully, the doubt is clear now and you have understood the basic concept of both VAT and tax. Make sure to pay attention while reading the above article so you can get to know about the key characteristics of VAT and taxes that are imposed on businesses and taxpayers in the country.