The fact that VAT and sales tax both are consumption taxes might confuse the general public, but there are some key differences. While sales taxes are only imposed on transactions of goods and that too on the final sale to the consumer, VAT is imposed on goods and services both and is charged throughout the supply chain not just on the final sale. Imports of goods and services are no exception to VAT. This ensures that a level playing field is maintained for domestic providers of those same goods and services.

Many countries incline to VAT for various reasons as it is considered to be a more sophisticated approach to taxation as it makes businesses function as tax collectors on behalf of the government and downscale misreporting and tax evasion.