2.1.

10 GST VS VAT

The current indirect tax system in India is characterised as multi-stage taxation with levy of
taxes not only at the central level but also at the state level.
Customs duty is imposed on imports, central excise on
manufacture, central state tax (CST)/ value – added tax (VAT)
at the time of sale and service tax on provision of services.
Other taxes such as octroi, entry tax and cess are also levied by municipal and local
authorities.

Finally Goods and Service Tax, commonly known as GST ia reality now and it has brought the
Indian taxation system under its unique ideology ‘one nation, one tax ’. The advent of GST
has subsumed all the indirect taxes in India, including Value Added Tax(VAT), Service tax,
Excices duty, and Octroi. These indirect taxes or VAT were levied on each step of value
addition of the product, thus creating a cascading effect. Therefore, GST was introduced to
bring down unwanted inflation in the economy.

WHAT IS VAT?

VAT- the Value Added Tax, was applicable for goods nad services. Service tax took care of
the services rendered. The previous taxation system included several indirect taxes along
the supply chain, resulting into high tax rates paid from the pocket of the ultimate
consumer.

WHAT IS GST?

However, GST is applicable for both goods and services, together with uniforming pricing.
GST is one tax that is levied on manufacturing, selling, and consumption of goods and
services. It is a destination -based tax, distributed maong the Central Government and the
State Governments under the components Central GST (CGST) and State GST (SGST).

HOW IS GST DIFFERENT FROM VAT?

In the words of many eminent economists, VAT and GST are just two names for one tax, but
on evaluating minutely, you observe the contrast. First and foremost, it’s important to
understand how valuation of goods is considered under their respective perspective.
VAT is calculated on the market price of goods. Further, excise duty and VAT add up to it.

For Example: Suppose a manufacturer sells a machinery worth Rs. 3000 to a distributor. The
invoice would reflect:

Price of goods = 3000/-

Excise duty @ 12.5% = 375/-

Subtotal = 3375/-

VAT @ 14.5% on subtotal = 490/-

The total payable amount by the customer = 3865/-

Whereas, GST will be only charged on the selling price and the subsequent parts of SGST
and CGST would add to the value of goods as per their percentage. The invoice under GST
scenario would reflect:

Price of goods = 3000/-

CGST @ 9% = 270/-

SGST @ 9% = 270/-

The total payable amount by the customer = 3540/-

The total difference of the two taxes = 3865-3540 = 325/-

Thus, GST has eliminated the additional, indirect and reduntant taxes and has reduced the
burden on the common taxpayer. However, there is more in terms to draw comparison
between VAT and GST. Let’s have a look at major points of difference amongst the two.

8 KEY POINT OF DIFFERENCES BETWEEN VAT AND GST

1. Taxable event

VAT – On Sale of goods.

GST – On every supply of goods or service.

 2. Tax between state and center

VAT – Only State govt. Gets the whole share for welfare of state’s public.

GST – GST is collected under SGST and CGST for every sale from same state. The
corresponding center and state amount then gets bifurcated.

3. Input Credit

VAT – Dealer has right to deposit his net VAT liabilty by deducting input VAT on goods
purchased and from output on goods sold.

GST – As GST is applicable on goods as well as services provided, the GST portal system
calculates the Input credit which is used for payment during the next GST liability.

4. Input tax credit on service of goods

VAT – Not applicable, as VAT is only for goods, not services.

GST – The paid GST on services adds up to total input GST comparable to total output GST,
which may be on goods sold. Finally, the tax payer gets the input credit on tax for the
services availed by the products you purchased.

5. Taxation on services

VAT – VAT is not applicable on provided or sold services. Services tax is charged additionally
@ 14.5%.

GST – GST rates for services depend on ntaure of service. It may be 12% and 18% and 28%
depending on the sector. Most services come under 15% GST.

6. Return Filing

VAT – Must the file return by 20th of succeeding month.

GST – Must file return for sales by 10th, purchase by 15th and payment by 20th of succeeding
month.

7. Compulsion for VAT No. & GST No.

VAT – If turnover is beyond RS. 10 Lakh.

GST – If turnover is or beyond RS. 20 Lakh.

2.2INTERNATIONAL SCENARIO

Importance of GST has been well acknowledged by many developed and fastest developing
economies of the world. The concept of GST might be new to or country but it’s an old
concept and it was France to implement GST for the first time in the owrld in 1954, Since
then many countries have implemented GST for the smooth development of their economy.
The journey of GST in some of the developed countries are discussed below :

 European Union (EU): European Economic community adopted GST throughout the
Europe, replacing cascading multi stage turnover tax owing to the ease with which it
handled cross-border transactions and facilitated development of a common market.
 Canada: In Canada, GST is applicable on supply of most goods and services including
real property and intangible personal property. Cnada has a federal government like
India and a federal GST was introduced in 1991.
 New Zealand: In New Zealand, GST was enacted in 1988 and was designed as a
comprehensive tax base including many difficult-to-tax goods and services. The New
Zealand GST become an international benchmark for indirect tax design.
 Australia: Implementation of new tax system package in Australia including GST in
1999 is considered as a landmark change to the Australian tax system. The GST
replaced the federal wholesale sales tax with a single tax rate of 10% on supply of
most of the goods and services.
 Singapore: GST was implemented at a single tax rate of 3% on 1 April 1994 with an
assurance it would not be raised for at least 5 years. The role of GST in the economic
development of Singapore can not be undermined. It was the first reform in the
taxation system which made it as one of the best nation in ease of doing business.
 Malaysia: In Malaysia GST was implemented in 2015, after debating for 26 years!
Consumer confidence nosedived; inflation went up; anti-GST protests in capital Kuala
 Lumpur. After initial hiccups things have settled down with 70% respondents
reoporting business growth in 2015.

Currently, there are 160 countries in the world that have implemented GST in some form or
the other.