GST levies a single standard tax rate for all supply of goods and services (India is still progressing towards establishing a single rate). Whereas SST levies multiple tax rates leading to a decline in tax productivity over the years. Most countries have moved away from SST to GST. SST is locally imposed and has a narrow tax base.
GST vs SST
The main difference between GST and SST is that GST is a unified and indirect tax that is levied on the supply of goods and services. SST is a service tax levied on any taxable service carried out by a taxable individual and a sales tax levied either at the manufacturer level or consumer level, once only.
Comparison Table Between GST and SST (in Tabular Form)
| Parameter of comparison | GST | SST |
|---|---|---|
| Definition | It’s a single consumption- based indirect system of taxation. It is universal throughout the national market. | It’s a sales and service tax levied on locally produced and imported goods and services provided. |
| Tax base | Large tax base with a national market. | Narrow tax base with a local market. |
| Method of taxation | It is levied at multiple stages to increase transparency. | Its imposed only at the output or sales stage. |
| Cascading and compounding effect | Eliminated | Exists |
| Exports | Exports are zero-rated and are eligible to claim input tax. | Due to differential tax rates and cascading effects, there is no complete relief for exports. |
What is GST?
GST is a unified and indirect system of taxation. It is levied on the supply of goods and services like sales of goods, transfer, supply, lease, exchange, or disposal of goods and services. Alcoholic liquor for human consumption, petroleum, and natural gas, real estate is excluded from the purview of GST.
GST is a multi-stage tax system for which input tax credit is available. The input tax credit is highly beneficial for businesses. GST is a consumption-based tax and its advantages are many. Reduction in tax incidence, reduced prices of goods and services, the formation of a common national market, increased ease of doing business for industries, reduction in multiplicity of taxes, and transparency are some of the benefits of GST.
GST was first introduced in France and was introduced recently in 2017 in India too. The system is particularly unique in India. Like India, Canada and Brazil have adopted a dual system of taxation under GST. Under a unified GST system, tax is collected by the union/ central authorities and is then distributed to the states/ provinces.
But in a dual system of GST, Center and the states separately collect their share. For example, while all countries that follow the GST system have a single rate, in India the model has been modified. There is Central GST, State/ Union Territory GST i.e. SGST/ UGST, and an Integrated GST that is applicable for interstate supplies and is payable to the Central government. Goods and services except for petroleum, alcohol, tobacco, and stamp duty on real estate, are classified in four slabs of 5, 12, 18, and 28 percent tax rates.
However, most of the daily use articles like fruits, vegetables, handicrafts, sanitary napkins, etc have zero percent GST.
GST rate in Canada is 5% but some states also charge a state GST called the provincial state tax (PST). The PST ranges from between 7% and 10%.
Before the GST, all countries followed SST varyingly. There existed several Central and State taxes. These included Central excise duty, cesses, surcharges, service tax, etc. The states levied Value Added Tax or Sales tax along with other taxes. Even India followed a similar system.
What is SST?
The sales tax is imposed on the manufacturing sector while the service tax is imposed on the selected services sector. Sales Tax is only imposed once on the manufacturer when sales are made to retail traders. The subsequent sales of the goods by the retailer or seller will not be imposed with sales tax. Sales tax is a value-added tax.
Service tax is imposed only on select services or taxable services only. Concerning the point of view of a layman, services here means assistance in any work, work conducted with the use of individual skill, taking up of any work on behalf of others, intangible services, etc. For example, cooking, painting, singing, medical assistance, etc are all intangible services that provide benefit to others in different ways.
Sales tax is of various types. A sales tax is imposed on the manufacturer if the buyer is the end consumer. If not, usually there exist several middlemen and sales to businesses that later resell the goods are not charged a tax. They are issued with a resale certificate.
Other types of sales tax include Manufacturers’ sales tax, Wholesale sales tax, Retail sales tax, excise duty, VAT, octroi, etc.
Sales taxes are usually deemed to be regressive. The rate of sales tax remains same for all classes of the society. It does not change with income levels and hence causes greater burden for the poor.
Main Differences Between GST and SST
- GST is business-friendly as the input tax credit is available but SST is a cost to the business. Because SST is deducted based on the sales made.
- Prices of goods and services are inclusive of GST but SST is not included in selling price because it operates as add on selling price.
- GST is value-added multiple-stage taxation but SST is imposed on the output stage only.
- GST is more transparent while SST keeps the consumers in dark about transfer pricing and vertical integration.
- Evidence shows that sales tax productivity has decreased over the years while that of GST has increased.
Conclusion
More than 160 countries around the world have implemented GST to overcome the drawbacks of SST. However, Malaysia has recently opted to go back to SST regime. Thus the present day necessity is to balance the disadvantages of GST and SST so as to reduce burden on consumers.
References
- https://search.proquest.com/openview/4e0b80d3407efcacc087ec4ef961e1bb/1?pq-origsite=gscholar&cbl=30282
- https://search.informit.com.au/documentSummary;dn=348442267344926;res=IELAPA