Understanding GST, VAT, and Sales Tax
Goods and Services Tax (GST), Value Added Tax (VAT), and Sales Tax are the three most common forms of consumption tax used by governments worldwide to generate revenue. While the goal is similar—taxing the sale of goods—the way they are calculated and collected can differ slightly.
What is VAT (Value Added Tax)?
VAT is a consumption tax placed on a product whenever value is added at each stage of the supply chain, from production to the point of sale. It is widely used in Europe and other parts of the world.
Common VAT Rates include:
- Standard (20-25%): Most common in countries like France, Germany, and the UK.
- Reduced (5-15%): Often applied to essential goods like food, children's clothes, or books.
- Super Reduced (0-5%): For pharmaceuticals or public transport.
What is GST (Goods and Services Tax)?
GST is a value-added tax levied on most goods and services sold for domestic consumption. It is paid by consumers, but it is remitted to the government by the businesses selling the goods and services. It is the primary form of tax in Canada, India, Australia, New Zealand, and Singapore.
Unlike VAT, which is applied in stages, GST is a single comprehensive tax on goods and services. However, the calculation remains identical for the end consumer.
How to Calculate Tax
Calculating tax depends on whether the price is Exclusive (tax is added) or Inclusive (tax is included).
1. Exclusive Price (Add Tax):
The price you see is the Net price. The Tax Amount is calculated as Net Price × (Rate / 100). The total Gross Price is Net Price + Tax Amount.
2. Inclusive Price (Remove Tax):
The price you see is the Gross price. The Tax Amount is calculated as Gross Price - (Gross Price / (1 + Rate/100)). This tells you exactly how much of your payment goes to the government versus the business.
Why Use Our Calculator?
Taxes can be confusing, especially when dealing with international trade or specific invoices. This tool provides instant accuracy, ensuring you can:
- Quickly estimate the final cost of a purchase.
- Back-calculate the pre-tax price from a receipt (especially useful for business expense reporting).
- Convert calculations between over 20 major global currencies for accurate international pricing estimates.