Question

What is Sales Tax, its salient features and how it works, do a comparative analysis between Sales Tax and Value Added Tax and render your personal opinion as to which system is better between the two for a developing country

Answer 1

A sales tax is tax paid to the government for the sales of certain goods and services . It is a tax on sales or on receipts from sales .

Features :

Elements of sales tax is embedded in the price paid by customers .

Government collects this tax at manufacturer's level only .

Usually it is allowed by law to shift the burden of the tax fully or partially on the consumer .

Sales tax is a retail point-of-purchase tax . It is collected from the manufacturer but is finally paid by consumer . This is because at each stage of sale it is levied on the buyer of the product .

	SALES TAX	VAT
	It is a tax on sales of certain goods and services	It is levied on good purchase
	Direct tax	Indirect tax
	Single point tax	Collected at multiple points
	Levied on total value	levied on value added
	Calculated on selling price	calculated on purchase price
	It is a % of taxable price	Calculated as value that is added to the product at every stage
	It is easier to calculate	It is more complicated
	It is a narrow concept	much wider concept
	Tax evasion is easier	evasion is not that easy

In a developing country VAT is much more applicable as it addresses the problem of cascading and input tax credit . These cause an automatic increase in price level . Cascading effect is when there is tax on tax levied on a product at every step of the sale.