What is the Difference Between GST and VAT?

  • March 11, 2024
  • Dushyant Sharma
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Countries that first introduced GST and VAT

During World War I, Germany and France became the first countries in the world to introduce Value Added Tax (VAT). They did so in the form of a general consumption tax. In 1954, France implemented a modified version of VAT in West Africa’s Ivory Coast (Côte d'Ivoire) colony. After seeing this experiment as a success, VAT was introduced in 1958 in the French Republic.

 

France is also known for being the first country in the world to introduce the Goods and Services Tax (GST) in 1954. The French Government introduced GST due to the high tax evasion in the country during that period. So far, 175 countries in the world have implemented either VAT or GST. The USA is one of the largest economies in the world, but it does not have GST or VAT; it has Sales Tax which is governed at a state-level.

GST and VAT differences

Here is a handy table of comparison between VAT and GST in context of India:

BASIS FOR COMPARISON

VAT

GST

Definition

It is a kind of consumption tax which is levied on the value addition, at each stage of production/distribution of goods and services

It is a destination based tax which is charged on the manufacture, sale and consumption of goods and services

The Taxation Point

Sale of goods

Supply of goods and services

Mode of Payment

Offline

Online

Registration

Mandatory if annual turnover crosses 10 lakhs.

Mandatory if annual turnover crosses 20 lakhs.

Basis of taxation

It is summary based

It is transaction based

Revenue Collection

Seller state collects VAT

Consumer state collects GST

Excise Duty

It is levied on the manufacture of excisable goods

It is not levied

Interstate sales

In case of interstate sales, input credit is not possible

Input credit is possible in case of interstate sales

GST & VAT in India

VAT and GST are relatively new concepts in India, as compared to France, Italy, Ireland, Nigeria and Israel. 

 

VAT is a kind of consumption tax which is imposed on sale of goods and services at different stages of the supply chain, from the production stage to the final stage of the sale. VAT became a part of the Indian Taxation System on 1st April, 2005. It replaced the existing general sales tax laws prevailing at the time. VAT was introduced in India with the aim of making the country a single integrated market. On 2nd June, 2014, VAT became applicable in all the states and UTs of India (with the exception of these two: Andaman and Nicobar Islands and Lakshadweep Islands).

 

GST is a tax which is levied on goods and services sold for domestic consumption in India. It was in 2000 that the Kelkar Task Force on Indirect Taxes first proposed the idea of having a nationwide GST in the country. It was believed that the introduction of GST would simplify the compliance process, decrease tax cascading and promote economic nature by replacing the complex and fragmented tax structure. GST became a part of the Taxation System of India on 1st July, 2017. This is why this day is also celebrated as GST day in the country. The introduction of GST led to the replacement of multiple taxes levied by the Central and State Governments.

 

VAT is still applicable in the country after the adoption of GST in the Indian Taxation System. Service tax, central excise, state value-added tax, entertainment tax, octroi, etc. were all replaced by GST but VAT is still applicable on Alcohol and Petroleum Products.

Petroleum products

Here is a list of VAT applicable on the Petroleum products in different states:

State/UT

Petrol

Diesel

Andaman & Nicobar Islands

6%

6%

Andhra Pradesh

31% VAT + Rs.4/liter VAT+Rs.1/litre Road Development Cess an

d Vat thereon

22.25% VAT + Rs.4/liter VAT+Rs.1/liter Road Development Cess and Vat thereon

Arunachal Pradesh

20%

13%

Assam

32.66% or Rs.22.63 per liter whichever is higher as VAT minus Rebate of Rs.5 per liter

23.66% or Rs.17.45 per liter whichever is higher as VAT minus Rebate of Rs.5 per liter

Bihar

26% or Rs 16.65/liter whichever is higher (30% Surcharge on VAT as irrecoverable tax)

19% or Rs 12.33/liter whichever is higher (30% Surcharge on VAT as irrecoverable tax)

Chandigarh

Rs.10/KL cess + 22.45% or Rs.12.58/liter whichever is higher

Rs.10/KL cess + 14.02% or Rs.7.63/liter whichever is higher

Chhattisgarh

25% VAT + Rs.2/liter VAT

25% VAT + Rs.1/liter VAT

Dadra and Nagar Haveli and Daman and Diu

20% VAT

20% VAT

Delhi

30% VAT

Rs.250/KL air ambience charges + 16.75% VAT

Goa

27% VAT + 0.5% Green cess

23% VAT + 0.5% Green cess

Gujarat

20.1% VAT +  4% Cess on Town Rate & VAT

20.2% VAT + 4 % Cess on Town Rate & VAT

Haryana

25% or Rs.15.62/liter whichever is higher as VAT + 5% additional tax on VAT

16.40% VAT or Rs.10.08/liter whichever is higher as VAT + 5% additional tax on VAT

Himachal Pradesh

25% or Rs 15.50/liter- whichever is higher

14% or Rs 9.00/liter- whichever is higher

Jammu & Kashmir

24% MST + Rs.5/liter employment cess, Reduction of Rs.0.50/Litre

16% MST + Rs.1.50/liter employment cess 

Jharkhand

22% on the sale price or Rs. 17.00 per liter , whichever is higher + Cess of Rs 1.00 per liter

22% on the sale price or Rs. 12.50 per liter , whichever is higher + Cess of Rs 1.00 per liter

Karnataka

35% sales tax

24% sales tax

Kerala

30.08% sales tax + Rs.1/liter additional sales tax + 1% cess 

22.76% sales tax + Rs.1/liter additional sales tax + 1% cess 

Ladakh

24% MST + Rs.5/Litre employment cess, Reduction of Rs.2.5/Litre

16% MST + Rs.1/Litre employment cess , Reduction of Rs.0.50/Litre

Lakshadweep

Nil

Nil

Madhya Pradesh

33 % VAT + Rs.4.5/liter VAT +1 % Cess

23% VAT+ Rs.3/liter VAT + 1% Cess

Maharashtra – Mumbai, Thane , Navi Mumbai,  Amravati & Aurangabad

26% VAT+ Rs.10.12/liter additional tax 

24% VAT+ Rs.3.00/liter additional tax 

Maharashtra (Rest of State)

25% VAT+ Rs.10.12/liter additional tax 

21% VAT+ Rs.3.00/liter additional tax 

Manipur

32% VAT

18% VAT

Meghalaya

20% or Rs. 15.00/liter, whichever is higher (Rs.0.10/liter pollution surcharge) 

12% or Rs. 9.00/liter, whichever is higher (Rs.0.10/liter pollution surcharge) 

Mizoram

25% VAT

14.5% VAT

Nagaland

25% VAT or Rs. 16.04/liter whichever is higher + 5% surcharge + Rs.2.00/liter as road maintenance cess 

16.50% VAT or Rs. 10.51/liter whichever is higher + 5% surcharge + Rs.2.00/liter as road maintenance cess 

Odisha

32% VAT

28% VAT

Puducherry

23% VAT

17.75% VAT

Punjab

Rs.2050/KL (cess) + Rs.0.10 per liter (Urban Transport Fund) + 0.25 per liter (Special Infrastructure Development Fee) + 24.79% VAT + 10% additional tax on VAT

Rs.1050/KL (cess) + Rs.0.10 per liter (Urban Transport Fund) +0.25 per liter (Special Infrastructure Development Fee) + 15.94% VAT + 10% additional tax on VAT

Rajasthan

36% VAT + Rs 1500/KL road development cess

26% VAT + Rs.1750/KL road development cess

Sikkim

25.25% VAT+ Rs.3000/KL cess 

14.75% VAT + Rs.2500/KL cess 

Tamil Nadu

13% + Rs.11.52 per liter

11%  + Rs.9.62 per liter

Telangana

35.20% VAT

27% VAT

Tripura

25% VAT + 3% Tripura Road Development Cess

16.50% VAT + 3% Tripura Road Development Cess

Uttar Pradesh

26.80% or Rs 18.74/liter whichever is higher

17.48% or Rs 10.41/liter whichever is higher

Uttarakhand

25% or Rs 19 Per liter whichever is greater

17.48% or Rs Rs 10.41 Per liter whichever is greater

West Bengal

25% or Rs.13.12/liter whichever is higher as sales tax + Rs.1000/KL cess – Rs 1000/KL sales tax rebate (20% Additional tax on VAT as irrecoverable tax)

17% or Rs.7.70/liter whichever is higher as sales tax + Rs 1000/KL cess – Rs 1000/KL sales tax rebate (20% Additional tax on VAT as irrecoverable tax)

Alcohol

Alcohol is taxed at the highest rate possible in most states in India. The VAT imposed on alcohol differs from state to state. Karnataka charges the highest tax in India for liquor i.e., 83 percent. Goa charges around 49 percent tax on liquor. This means that a bottle of spirit (non-beer) which is sold for Rs 100 in Goa will be sold for Rs 513 in Karnataka. The tax rate for alcohol is 71 percent in Maharashtra and 69 percent in Rajasthan.

Disadvantages of VAT

The following are some of the disadvantages of VAT due to which GST’s introduction became necessary:

  • VAT led to a cascading effect of taxes.
  • No Input Tax Credit was provided under VAT on service tax paid. 
  • VAT rates would differ from state to state in India. There was no uniform rate throughout the country.
  • Different VAT laws were applicable in every state of India.
  • Input of Central Sales Tax (CST) was unable to be adjusted against VAT.

Benefits of GST Implementation

The following are the benefits of the implementation of GST:

  • It has led to the removal of the cascading effect of tax.
  • It has simplified online procedures related to registration, return filing, and refunds.
  • Fewer compliances, so they’re easier and less confusing to comply with.
  • It provides a defined treatment for the companies related to e-commerce.
  • Small taxpayers find it easier to follow the less complicated procedures and return forms which are related to GST.
  • The introduction of GST has led to an improvement in logistical efficiency.
  • GST provides for a single indirect tax law across the country.
  • GST implements uniform indirect tax rates across India, creating more clarity and less confusion for the citizens.

GST has been designed to be a single, detailed, destination-based tax. It unifies the entire country’s way of collecting the tax and has revolutionized the Indian tax system. In addition to this, it aims to further eliminate the “tax on tax” concept.

Conclusion

Since its implementation in India, GST has proved to be efficient in many ways. However, there are still a few products such as petrol and alcohol that are not covered by GST, but VAT. As the GST evolves further, we can expect additional goods and services to be covered by the GST regime.


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Dushyant Sharma
Author: Dushyant Sharma

Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.

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