What is the difference between a VAT and a GST? www.onerupee.net

1. VAT v/s GST
Value added Tax (VAT) and Goods and Services Tax (GST) have existence in many countries.
They both are the forms of consumption tax. VAT is a tax that is a difference between the
price of the product or commodities before tax and the cost of production whereas GST is the
summation of all indirect taxes. GST will be implied on the goods (manufacturing) and the
services as well.
VAT is a tax levied on the difference between a commodity's prices before taxes and is based
on factors like cost of production. GST is added to both products and services, which is
different from VAT. When a business operating in a country where GST is applied buys goods
or services it pays an amount of tax to the supplier of those items. This is called the "input
tax." When the same business sells goods or services to its own individual or business
customers, they charge a tax which is called as "output tax." Deducting input from output
taxes gives the GST value that the business must pay to the government.
One of the differences between VAT and GST is that GST falls into the New Tax System Act
of 1999. Because of the different methods of evaluation of VAT or GST, a double taxation can
occur in which a seller of a given product is taxed as they purchase that product and exchange
it later. To avoid such circumstances some exports are not subject to VAT and if a charge is
levied it becomes refundable.
GST or VAT is used interchangeably but there is a minute difference noticed in their
applications that under VAT taxation system a trader cannot deduct the amount of service tax
paid by him on the input services (such as rent of the premises) from the output tax paid by
him on the final goods sold. He is allowed to deduct only the input tax paid by him on the
goods purchased by him (on which he incurs further cost and adds a profit margin). Whereas
in the GST he can deduct such input tax paid on the services availed by him from the output
tax (GST) payable. This all will happen because all the indirect taxes will come under GST,
so there will be no discrimination between goods and services.
If GST is applied general price level would also come down in the economy. For example a
manufacturer has to pay a number of taxes as soon as the produced goods move out of the
factory premises. He pays excise duty, VAT which is simply passed on to the next stage in
the form of increased prices of the goods. After all these taxes will be merged under a
common tax net (the GST), the manufacturer would not be required to separately pay the
excise duty to the central government.