1.     

 
Difference
between Value added tax (VAT)  and
withholding tax (WHT)

Value added tax
(VAT) [From Wikipedia] is tax on exchanges. It is levied on the value added
that results from each exchange. It differs from a sales tax because a sales
tax is levied on the total value of the exchange. For this reason, a VAT is
neutral with respect to the number of passages that there are between the
producer and the final consumer. A VAT is an indirect tax, in that the tax is
collected from someone other than the person who actually bears the cost of the
tax (namely the seller rather than the consumer). To avoid double taxation on
final consumption, exports (which by definition, are consumed abroad) are
usually not subject to VAT and VAT charged under such circumstances is usually
refundable.

Withholding is the tax that an employer
deducts and withholds from employees’ wages every pay period. The withholding
is based on the employee’s wages during that pay period and number of
dependents. When the employee calculates his income taxes for the year, the
amount of taxes withheld helps determine whether a refund is issued to the
taxpayer (more was withheld than necessary) or whether the taxpayer owes more
in tax (less tax was withheld than necessary).

2.     Define withholding tax
Withholding tax is income tax withheld from employees’ wages and
paid directly to the government by the employer, and the amount withheld is a
credit against the income taxes the employee must pay during the year. It also
is a tax levied on income (interest and dividends) from securities owned by a nonresident as well as other
income paid to nonresidents of a country.

Difference between Value
Added Tax (VAT) and Sales Tax

Often referred to as the “goods and service tax”, the
Value Added Tax is distinctly different from the sales tax levied on exchanges.
The Value Added Tax is a form of indirect tax that is imposed at different
stages of production on goods and services. VAT is levied on the import goods
as well and the same rate is maintained as that of the local produce. Most of
the European and non-European countries have adopted this system of taxation.
The transparent and neutral nature of taxation has prompted VAT to emerge as
one of the robust revenue raisers in these countries.

Sales tax, as compared to VAT is the percentage of revenue imposed on the
retail sale of goods. Unlike VAT, sales tax is levied on the total value of
goods and services purchased.

The value added tax system, unlike the conventional sales tax system,
efficiently addresses the problems of cascading and input tax credit that
causes an automatic hike in the consumer price level. The incidence of
cascading is avoided in VAT as the tax is imposed on the value addition at
every stage of production. The final consumers are the ultimate bearers of the
burden. This indirect yet coherent form of taxation involves transparency and
is therefore easily comprehensible. The economic effect of VAT falls on the
final prices of the goods and services while sales tax relies on the final sale
to the customers. Sales tax
is collected by the retailer when the final sale in the supply chain is reached
via a sale to the end consumer. End consumers pay the sales tax on their
purchases. Businesses issue resale certificates to their sellers when buying
business supplies/inputs that will be resold since sales tax is not due. Tax
jurisdictions do not receive the tax revenue until the sale is made to the
final consumer.

VAT (Value-Added Tax) is
collected by all sellers in each stage of the supply chain. Suppliers,
manufacturers, distributors and retailers all collect the value added tax on
taxable sales. Suppliers, manufacturers, distributors, retailers and end
consumers all pay the VAT on their purchases. Businesses must track and
document the VAT they pay on purchases that will be resold in order to receive
a credit for the VAT paid on their tax return. Tax jurisdictions receive the
tax revenue throughout the entire supply chain as opposed to at the sale to the
final consumer chain.

2b.  similarities
between sales and VAT

Sales tax,
as compared to VAT is the percentage of revenue imposed on the retail sale of
goods. Unlike VAT, sales tax is levied on the total value of goods and services
purchased.

The value added tax system, unlike the conventional sales tax system, efficiently
addresses the problems of cascading and input tax credit that causes an
automatic hike in the consumer price level. The incidence of cascading is
avoided in VAT as the tax is imposed on the value addition at every stage of
production. The final consumers are the ultimate bearers of the burden. This
indirect yet coherent form of taxation involves transparency and is therefore
easily comprehensible.

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