Difference between Income Tax and Sales Tax

Main Difference

Tax can be broadly categorized into two categories namely income tax and sales tax. Both are compulsory contribution made by the public in order to meet the needs of government expenditures. Both are entirely different from each another. The main difference between income tax and sales tax is that income tax is a direct tax whose impact cannot be passed over to other persons while sales tax is an in direct tax whose impact always passed over to other persons like customers.

Income Tax

An income tax is a government tax that is imposed on liable individuals on their income, profits and other taxable incomes. The rate of tax varies from income to income. Normally the person having higher income charged with higher rate of tax as comparison to the person having low income. It is based on the principle of progressive tax as rate increases with the increase in taxable income and decreases with the decrease in taxable income. Income from salary, income from business, income from capital gains, income from property, income from other sources, etc. all are kinds of income tax. The main feature of income tax is that it is a form of direct tax as the person who is actually paying the tax can’t pass over its impact on other persons.

Sales Tax

A sales tax is a government levy that is payable on the sales of described goods and services. Federal excise duty, customs duties, gross receipts tax, value added tax, general sales tax, fair tax, turnover tax, etc. all are kinds of sales tax. Normally the rate of sales tax remained fixed for each goods and service category separately. Moreover, the rate of sales tax may be differ in case of sales to registered person and non-registered person, however, non-registered persons are charged with higher rate of tax. The main feature of sales tax is that it is a form of indirect tax as the retailers, wholesaler, dealer or manufacturer pays the tax at initial level provisionally and later on, he shifts the burden on the end-customer by including the amount of sales tax in the price of goods or services.

Key Differences

  • Income tax is charged on the personal income of a person while sales tax is paid on the sale of goods, product and any kind of services.
  • Income from salary, income from business, income from capital gains, income from property, income from other sources, etc. all are kinds of income tax. While Federal excise duty, customs duties, gross receipts tax, value added tax, general sales tax, fair tax, turnover tax, etc. all are kinds of sales tax.
  • Impact of income tax can’t be shifted on the other person as the person who is actually paying the income tax, bears the burden. While the impact of sales tax always shifted on the other persons (customers).
  • Income tax is a direct tax while sales tax is an indirect tax.
  • Income tax can be avoided but it is hard to avoid the sales tax as it is wrapped in the price of product or service that is being purchased by the customer. A customer will automatically pay the sales tax when he will purchase a specific product or service.

Video Explanation

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