- Tax Structure and Application: Sales tax is a single-stage tax applied only at the final sale to consumers, typically added at checkout, while VAT (Value Added Tax) is a multi-stage tax levied at each step of the supply chain, with businesses able to reclaim VAT paid on purchases through input VAT credits.
- Compliance and Record Keeping: Compliance requirements differ significantly; sales tax relies on resale or exemption certificates and is reported by the final seller, whereas VAT requires detailed invoicing and reporting at multiple points in the supply chain, necessitating thorough record-keeping by all businesses involved.
- Impact on E-Commerce: E-commerce businesses must navigate both sales tax and VAT regulations when selling across borders, with VAT often included in the displayed price and sales tax calculated separately based on location. The complexity of these tax systems can affect pricing, cash flow, and compliance obligations for online sellers.
Source VATAi
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