Is there a fundamental difference, or are they two names for the same thing?
The mechanics of applying VAT and GST are basically the same. Following the pure definition VAT is applied to tangible goods and GST is applied to both Goods and Services, but reality is the two terms are often use interchangeably.
1. VAT is levied on goods whereas GST on both goods & services as it is evident from the name. Edit:However, in Europe VAT is levied on both goods & services as pointed out by Richard Russell 2. GST would have a uniform rate in all the states which VAT lacks as each state levies it rate of duty for each goods. 3. Input credit can be set-off only against the goods sold within the state whereas incase of GST not only you can set-off input credit against goods sold within the country but also against the services. The introduction of GST is to overcome the short-comings of VAT with these 3 issues mentioned above tops the list. Other than that, the paperwork will be reduced and more clarity on indirect taxes by introduction of GST. On the very basic outset,I think GST is the summation of all the indirect taxes' that are levied in India. The functioning of this tax system would be the same as that of VAT,like:providing tax credit of the input tax already paid from the output tax payable. However,it would also take into account the production(subject to excise duty) and services..... One difference which is worth noticing is the reduced cost which a trader would incur under the GST regime as compared to what would be his outflow until the GST is implemented.Under the VAT system of claiming tax credit,a trader is not allowed to deduct the amount of service tax paid by him on the input services(such as rent of his premises) from the output VAT payable 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).But under GST,he can deduct such input tax paid on the services availed by him from the output tax(GST) payable.The simple reason for this being that nearly all the input taxes would be brought under the purview of GST. So,there would be no discrimination between the goods and services to the extent that they are used to facilitate the trader for passing onto the goods to the next stage. Also,the general price level would come down in the economy.A manufacturer has to pay multiple taxes' as soon as the produced goods move out of the factory premises.He has to pay 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 are subsumed under a common tax net(the GST),the manufacturer would not be required to separately pay the excise duty to the central government. As a result,the general price level of goods and services would fall once the GST is implemented...