Business

Difference Between Income Tax and Sales Tax

Main difference

Taxes can be classified into two categories, namely income tax and sales tax. Both are mandatory contributions made by the public to meet the needs of public spending. Both are completely different from each other. The main difference between income tax and sales tax is that income tax is a direct tax whose impact cannot be passed on to other people, while sales tax is a direct tax whose impact is always is passed on to other people such as customers.

What is income tax?

An income tax is a government tax levied on liable individuals on their earnings, profits, and other taxable income. The tax rate varies from income to income. Typically, the person with higher income bears a higher tax rate compared to the person with lower income. It is based on the principle of progressive tax, since the rate increases with the increase in taxable income and decreases with the decrease in taxable income. Salary income, business income, capital gains income, property income, income from other sources, etc. They are all types of income taxes. The main characteristic of income tax is that it is a form of direct tax,

What is sales tax?

A sales tax is a government levy paid on sales of the described goods and services. Federal excise tax, customs duties, gross receipts tax, value added tax, general sales tax, fair tax, turnover tax, etc. are types of sales tax. Normally, the sales tax rate was kept fixed for each category of goods and services separately. Also, the sales tax rate may differ for sales to registered and unregistered persons, however, unregistered persons pay a higher tax rate. The main characteristic of the sales tax is that it is a form of indirect tax, since the retailer, wholesaler, distributor or manufacturer pays the tax at the initial level on a provisional basis and subsequently transfers the burden to the final customer by including the amount of sales. tax on the price of goods or services.

Key differences

  1. Income tax is collected on a person’s personal income, while sales tax is paid on the sale of goods, products and any type of service.
  2. Salary income, business income, capital gains income, property income, income from other sources, etc. They are all types of income taxes. While Federal Excise Tax, Customs Duties, Gross Receipts Tax, Value Added Tax, General Sales Tax, Fair Tax, Turnover Tax, etc. are all types of sales tax.
  3. The impact of the income tax cannot be passed on to the other person, since the person who actually pays the income tax bears the burden. Whereas the impact of the sales tax has always shifted over to other people (customers).
  4. Income tax is a direct tax, while sales tax is an indirect tax.
  5. Income tax can be avoided, but sales tax is difficult to avoid, since it is included in the price of the product or service the customer is buying. A customer will automatically pay sales tax when they purchase a specific product or service.

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