What Is GST?
Goods and Services Tax (GST) is a broad-based consumption tax levied on the sale of most goods and services. It's designed to be invisible to end consumers in the sense that businesses collect it on behalf of the government, then remit it after deducting GST they've already paid on their own purchases.
GST is essentially the same concept as Value Added Tax (VAT), which is the term used in most European countries. The names vary by country — Australia and New Zealand call it GST, Canada uses a combination of GST and provincial sales taxes, while most of Europe, Asia, and Latin America use VAT or similar terminology. The mechanics are essentially identical across systems.
The tax is called "value added" because businesses only pay tax on the value they add to products — not on the full sale price. A manufacturer pays GST on raw materials, then collects it when selling to a wholesaler, who in turn pays GST on the difference between their purchase and sale prices, and so on down the chain. Our GST calculator handles these calculations for you.
How GST Is Calculated and Passed On
For a business registered for GST, calculating the tax is straightforward. Multiply the net amount by the GST rate to get the tax, then add to the net to get the gross (total) amount. In a country with 10% GST, a $50 service has $5 GST added, making the total $55.
Businesses can claim input tax credits — they subtract the GST they've paid on business purchases from the GST they've collected on sales. A retailer who collected $1,000 in GST but paid $700 in GST on inventory can remit only $300 to the tax authority. This system means the final consumer bears the full tax burden.
If you're a business owner, always track GST paid on business expenses separately from GST collected on sales. Mixing these up leads to incorrect filings and potential penalties. Most accounting software handles this automatically, but understanding the mechanics helps you spot errors.
For consumers, the price you see on the shelf typically excludes GST — or includes it, depending on local display conventions. In Australia and New Zealand, prices generally display GST-inclusive. In the US, sales tax is added at checkout and not shown on price tags. European countries vary in their display requirements.
GST Rates Around the World
GST rates vary significantly between countries and even within countries for different goods and services. Standard rates in developed nations typically fall between 5% and 25%.
Canada: Federal GST is 5%, with provincial sales taxes varying from 0% (Alberta, no PST) to 10% (combined in some provinces).
Australia: Standard GST is 10%, with most basic foods, healthcare, and education exempt.
United Kingdom: VAT standard rate is 20%, with reduced rates of 5% (home energy, children's car seats) and 0% (most food, books, children's clothing).
India: GST replaced a complex multiple-tax system with rates of 5%, 12%, 18%, and 28%, depending on the product category.
Japan: Consumption tax is 10% (increased from 8% in 2019), with no reduced rates.
Special Considerations and Exemptions
Most GST systems exempt or zero-rate certain essential goods and services. Healthcare, education, and basic food items often carry zero or reduced rates to reduce the tax burden on lower-income households. However, exemptions can create complexity — determining whether a particular item qualifies often requires professional guidance.
Small business thresholds matter for GST registration. In Australia, businesses with GST turnover under $75,000 don't need to register. In Canada, the threshold is $30,000. Below these thresholds, businesses save the administrative burden of GST compliance but also can't claim input tax credits.
International transactions involve special rules. Exporting goods typically qualifies for zero-rating (exporting is tax-free), while importing goods requires paying GST at customs. This prevents double taxation on cross-border trade while ensuring domestic goods and imported goods face similar tax treatment.