Business Mathematics and Basic Statistics · Ch 3 — Sales Tax, VAT and GST
Comparing Sales Tax, VAT and GST
Comparing Sales Tax, VAT and GST
The three systems described in §1–§3 are best understood side by side — not as three unrelated formulas, but as three successive attempts to tax the sale of goods (and, with GST, services too) while progressively fixing the cascading problem of the system before it.
| Feature | Sales Tax | VAT | GST |
|---|---|---|---|
| Point of levy | Single-point (once in the chain, e.g. first sale or retail) | Multi-stage (at every sale in the chain) | Multi-stage (at every supply, goods AND services) |
| Credit for tax already paid | Not available | Available — Input Tax Credit | Available — Input Tax Credit (tracked separately for CGST and SGST) |
| Cascading effect ("tax on tax") | Present | Removed | Removed |
| Levying authority | State governments | State governments | Central + State jointly (CGST + SGST for an intra-state supply) |
| Scope | Goods only | Goods only | Goods and services |
| Rate uniformity across India | Varied state to state | Varied state to state | Largely uniform nationwide (GST Council-notified rates) |
The single most important row in this table is the cascading effect row. Under Sales Tax, once a dealer has paid tax to their own supplier, that tax simply becomes part of the dealer's cost — so when the dealer adds a margin and charges tax again on the new (already-taxed) price, the buyer ends up indirectly paying tax on a price that already includes an earlier tax. Under both VAT and GST, the input tax credit mechanism means each dealer's tax bill reflects only the value that dealer personally added — the government still collects tax equal to the full rate on the final sale price, but only once in total, not compounded stage after stage.
A Quick Way to See It …
The result of taxing a price that already includes an earlier stage's tax, because no credit for that earlier tax is available — present under Sales Tax, rem …