Although we know that so many discussions are being held on GST. Let us know what is the difference between GST and VAT. In 1954, GST was introduced for the first time in France. Today this tax has spread across 140 countries. Here let us see what are benefits, drawbacks, is GST implementation in India is a beneficial factor or not, etc.
VAT is a kind of tax which levied on the sale of goods and services when these goods are ultimately sold to the consumer. VAT Tax is an integral part of the GDP (Gross Domestic Product) of any country.It is one of the leading powers held by the government of India. VAT is imposed on intrastate sale that is the sale of goods within the state. VAT is a tax on value addition on the goods.
Must Read: All about VAT
India at present has so many taxes which are levied on Goods and Services like Service Tax, VAT, Entertainment Tax, Excise, Luxury Tax, etc. For reducing the cascading effect and decreasing the no. of taxes and making into a single tax, GST came into effect. Not only it came as a single tax but also to take a significant step in the field of Indirect Tax reforms this Goods and Service Tax was introduced in India.
Must Read: Why GST is Implementing in India
Difference Between GST and VAT
The principal applying for VAT and GST are basically the same. But if you go through these points then you can find the correct difference between GST and VAT.
- The basic difference is VAT is levied on goods whereas GST on both goods and services.
- VAT is levied as per State laws and Rates and for each good as per their schedule, the VAT tax rate changes but when comes to the matter of GST it has a uniform rate in all states.
- GST is a destination based tax whereas VAT is a multi-point destination-based system of taxation.
- According to the principal of VAT, Input credit can be set-off only against the goods sold within the state. In the case of GST not only you can set-off input credit against goods sold within the country but also you can set-off against the services.
- GST is the summation of all indirect taxes which is levied by the Central Government whereas VAT is levied as Separate Tax.
The main reason to introduce GST Regime is to reduce the cost which a trader would suffer from. Since the overall system of GST is very similar to VAT, which can be considered the first step towards GST. One of the strong belief in implementing GST is the general price level would come down in the economy. In present situation, the manufacturer is responsible to pay multiple taxes as soon as the produced goods move out of the factory premises. The manufacturer has to pay VAT, Excise Duty, CST, etc. but as GST is subsuming all the indirect taxes, the tax burden is equitably distributed between the manufacturer and retailer. So as a result, the general price level of goods and services would fall once the GST is implemented.