The main difference between VAT (Value-Added Tax) and U.S. Sales Tax lies in how and when the tax is applied during the process of buying and selling goods or services. Here’s an easy breakdown:
1. Tax Type: VAT: A multi-stage tax applied at every step of the supply chain, from production to final sale. However, businesses claim credits for VAT they’ve already paid, so the tax ultimately falls on the consumer. U.S. Sales Tax: A single-stage tax applied only at the final point of sale to the consumer. Businesses don’t get credits for sales tax paid on their purchases. 2. Who Collects Tax: VAT: Each business in the chain charges VAT and pays it to the government. U.S. Sales Tax: Only the final consumer pays sales tax and it is collected by the retailer. 3. Scope of Application: VAT: Common in most countries around the world (e.g., Europe, Asia, Africa, South America). Sales Tax: Used primarily in the United States. 4. Taxpayer Burden: VAT: Collected at each stage across the supply chain, but the consumer ultimately bears the cost. Sales Tax: Each participant pays tax on some components which is included in the ultimate price that the final sales tax is charged on to the final consumer.Both taxes aim to fund public services, but their methods of collection and impact on businesses differ.