Goods and Services Tax (GST) versus Value-added Tax (VAT): What are the differences?

Goods and Services Tax (GST) versus Value-added Tax (VAT): What are the differences?

Goods and Services Tax (GST) and value-added tax (VAT) are two different things. A tax that is collected by the seller and paid or remitted to the government by the buyer is called an indirect tax.

In the corporate tax community, sales tax and VAT are frequently conflated. You should read the following, which gives a more in-depth explanation.

Sales tax and value-added tax are two different terms for the same thing (VAT) In the final stage of the supply chain, sales tax is collected by the retailer. When end consumers purchase goods or services, they pay sales tax. Suppliers and manufacturers who are reselling supplies and materials don't have to pay sales tax on their purchases. Sales tax will not be collected during the transaction, and jurisdictions will not collect revenue.

All the way up the supply chain, import tariffs are applied. The idea is accepted throughout the entire VAT system. Even if a party within the supply chain charges VAT on its sales, everyone in the supply chain charges VAT. If a cheap small business accountant wants to receive a credit for VAT

paid on a tax return, they must keep track and document VAT charged on their purchases. Not only does the VAT regime collect tax revenue throughout the supply chain, but it also collects tax revenue at every point of sale to the final consumer.

VAT collection is required whenever any of the following situations occur: • • •

permanent establishment – a facility that already exists, as well as bookkeeping and the ability to enter contracts the registration threshold for taxpayers who are engaged in business in a particular tax jurisdiction You are required to register for VAT because of a specific activity (e.g., legal services)

Sales tax and Value-Added Tax (VAT) collectors Although the seller is responsible for collecting and remitting sales tax, buyers may be required to collect and remit sales tax on their behalf.

Invoicing • •

Sales tax should be collected from the buyer by the seller.

Prices are tax inclusive in the vast majority of countries where VAT is collected.

Sales made by businesses are subject to taxation • •

Resellers of items purchased with the intent of reselling do not have to pay sales tax.

Sales tax, as well as any purchase taxes collected from customers, are included in the department's revenues.

Verify the possibility of sales tax and VAT liability • •

Retail sales tax: Vendors who resell must maintain valid exemption certificates on file in order to avoid being subjected to a tax audit, which could result in taxable sales.

In order to claim VAT returns, every business must maintain invoices for purchases that document VAT payments.

Tax revenues are collected at specific times.

• •

The collection of sales tax occurs during the transaction of the sale of goods to the end customer.

Tax on Value Added: Because of the VAT, tax revenues are distributed much earlier than tax revenues are collected.