| / VAT vs GST

stands for Value Added Tax. Essentially, its a consumption tax thats applied to the purchase price of certain goods or services. Although there are some items that are exempt from VAT or are charged at a zero rate (meaning that the government does not currently charge VAT for these items but could in the future), the price of most goods/services is affected by VAT. Although VAT is a type of tax, its an indirect tax, meaning that the government doesnt collect it directly from customers. Instead, businesses collect the tax themselves before repaying it to the government.

What is GST?

GST stands for Goods and Services Tax. Its a form of Value Added Tax thats charged in countries like Australia, India, Canada, New Zealand, Singapore, and Hong Kong. It works more or less the same way as VAT in that its a consumption tax thats imposed upon the costs of goods and services. As with VAT, youll need to register for GST and the penalties for failing to do so can be significant, so its best not to put off registration once you become aware that GST applies to your business. For a little more information about GST (in Australia), check out our article.
GST and VAT difference

In many ways, GST and VAT are simply two words for the same tax. You can think of VAT as a type of Goods and Services Tax or GST as a type of Value Added Tax, but they essentially mean the same thing. As a result, UK-based businesses probably dont need to worry about GST/VAT differences because it simply wont be relevant. However, if your company has premises in countries where GST applies or you do a significant amount of business with GST countries, there are a couple of GST/VAT differences that it may be valuable to learn about:

  • Rate of taxation When it comes to GST vs VAT tax, VAT is typically higher than GST. Whereas the rate of VAT in the UK is 20%, the rate of GST in Australia, Singapore, and Canada is 10%, 7%, and 5%, respectively.
  • Exempt/tax-free items Its also worth noting that some goods which are exempt from VAT may not be exempt from GST, and vice versa. For example, precious metals are GST-free in Australia, but while gold is exempt from VAT in the UK, silver, palladium, and platinum are not.
  • Registration requirements In addition, the registration requirements for VAT and GST are likely to differ from country and country. If you have a GST turnover of over AUD75,000, you will have to register for GST. By contrast, the VAT threshold is 85,000.

As you can see, there are a number of differences between VAT and GST. Because both VAT and GST are such complex areas of taxation, it may be a good idea to outsource your tax filings to a specialist accountant, particularly if youre dealing with both VAT and GST at the same time.