VAT vs. GST: A Business Owner Guide

Taxation is an inevitable part of doing business. For many countries, consumption taxes like VAT (Value Added Tax) and GST (Goods and Services Tax) are the primary source of revenue. But how do you calculate them correctly?

What is VAT/GST?

Both are indirect taxes on the consumption of goods and services. They are levied at each stage of the supply chain where value is added.

• VAT is commonly used in Europe and parts of Asia/Africa.
• GST is used in countries like Canada, Australia, India, and New Zealand.

Functionally, they often work the same way for the end consumer: a percentage is added to the sale price.

Calculating Tax Exclusive vs. Inclusive

This is where business owners often get tripped up.

1. Adding Tax (Tax Exclusive)

If your price is $100 and tax is 10%, you simply multiply.

2. Removing Tax (Tax Inclusive)

If you sell an item for $110 that already includes 10% tax, the tax amount isn't $11. It's actually $10.

Why It Matters

Incorrectly calculating the tax component from gross receipts is a common accounting error that can lead to underpaying or overpaying taxes. Always know if your pricing is inclusive or exclusive.

Billing Support

Ensure your invoices are accurate with our GST/VAT Calculator.