If you are wondering about your business’s tax obligations it’s time that you pay your annual taxes. Maybe you have heard of a business term that you are not very familiar with – GST! The question that arises here is what is GST? Let’s do a little digging and you will find out that GST is not very different from VAT.
GST vs VAT Tax and What It Means for Consumers and Businesses. The question is that if these differences between these terms make any difference for your business. This blog has got you covered. We will let you know everything that will satisfy your quest for knowledge about GST or VAT.
In this handy guide, we will cover the following:
- How to define VAT?
- What is GST?
- Major Differences between VAT and GST
How to Define VAT?
VAT is the abbreviation of Value Added Tax. On the purchase of certain products and services, it is a consumption tax that is applied then. It is a type of indirect tax that means that the Government does not collect it directly from the customers. The businesses that sell products collect this kind of tax from the customers before they pay it to the government.
However, there are some purchases on which the tax is exempted and charged at zero rates. In this situation, the government does not apply VAT currently but there is the possibility that it can be charged in the future. So, the prices get affected by applying VAT on the purchase.
What is GST?
Let’s delve deep to know what is GST. GST is the abbreviation of Goods and Services Tax. It is also a form of Value Added Tax (VAT). It is charged in the countries like Hong Kong, Australia, Singapore, New Zealand, India, and Canada. More or less VAT and GST work the same way in the consumption tax that is imposed on the products and services.
If you are unable to register for GST, the penalties will be significant as you failed to register for GST. It is suggested not to put off the registration to avoid penalties after you are fully aware of GST and the process.
GST vs VAT Tax The Key Differences
It is said that GST and VAT are simply two words for tax. VAT is the kind of tax that is associated with goods and services tax. Whereas GST is a kind of VAT (Value Added Tax), they are mainly two different words for the same tax. Businesses that are based in the UK don’t worry about VAT and GST.
However, if you do business with the premises of countries where GST is applied, several differences might help you if learned, this includes the following.
- Registration Requirements
- Tax-free Items
- Rate Of Taxation
Registration Requirements:
This may vary from country to country for VAT and GST if we talk about registration requirements. If GST turnover goes over AUD 75,000 then it is a must to register for GST. In contrast, the VAT threshold is 85,000 pounds.
Tax-free Items:
Another important point to know is that some products that are exempted from VAT are not free from GST. For example, some precious metals like gold are exempt from VAT in the UK. However, silver and platinum are not exempt from VAT. Some of the precious metals are GST-free in Australia as well.
Rate Of Taxation:
Normally VAT is higher than GST. When it comes to the rate of VAT in the UK, it is 20 per cent. In Singapore, Australia, and Canada the GST rate is 7 percent, 10 percent, and 5 percent accordingly.
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Conclusion:
As you have read about what is GST and VAT along with several differences between them. If you are in dealing with VAT and GST at the same moment, it is suggested to outsource your tax filing from a professional accountant. As GST and VAT, both are complex taxation areas.
