VAT vs. Sales Tax
While both VAT and Sales Tax are indirect taxes collected on behalf of governments, their execution differs fundamentally:
- VAT: Collected at every stage of the production chain. Producers, wholesalers, and retailers all collect VAT on their sales, but they can offset the tax they paid on their purchases. The final burden lies entirely on the consumer.
- Sales Tax: Only collected at the final point of sale to the consumer. B2B transactions are usually exempt via resale certificates.
Typical VAT Rates Around the World
Below is a general reference of standard VAT rates in major economies:
| Country/Region | Standard VAT Rate | Local Name |
|---|---|---|
| United Kingdom | 20% | VAT |
| Germany | 19% | MwSt. |
| France | 20% | TVA |
| Australia | 10% | GST |
| China | 13% | 增值税 |
How VAT is Administered
Registered businesses act as tax collectors. They calculate their net VAT payable by subtracting the input tax (tax paid on business inputs) from the output tax (tax charged to customers). If output tax exceeds input tax, the difference is paid to the government. If input tax is higher, the business can claim a refund.