Looking at the above illustration the following advantages of VAT become apparent:

1. It widens the tax base and promotes equity:
   
   

• One can see that VAT is a multiple point taxation mechanism replacing the single point Sales Tax Law. The tax is not just collected at the shopkeepers end. It is collected from every person that forms the chain from the raw material supplier to the person making the ‘final’ sale.
  
  

2. It eliminates cascading impact of double taxation and promotes economic efficiency:
   
   

• Every person making a sale, gets the credit of the tax that he has already paid to the government (indirectly, through the invoice price) on the corresponding purchases made by him.