What is GST?

What is the meaning of GST and how it works.

GST (Good and Service Tax) is a value-added tax applied to the cost of certain goods and services. Put simply, GST is a consumption tax that’s applied to the purchase price of certain goods or services.

GST applies to most products or services a business sells for domestic consumption. There are more than 160 countries that have, to date, implemented GST in some form or another since 1954. GST is also referred to as Value-Added Tax (VAT) in some countries.

How GST Works

GST aims to unify and simplify several types of tax (such as sales tax, excise duty tax, service tax) with state-level taxes (e.g., transfer tax, luxury tax, entertainment tax) and collect them as one single tax at a single – GST.

Businesses add GST to the final selling price of their product. The customer who purchases the product pays the selling price inclusive of GST. The GST is then collected by the business and passed on to the government.

Let’s take the example of a country where the GST rate is 10%. In this example, a business charging $100 for their services would add an additional 10% ($10) so that the total amount charged to the customer is $110. The additional $10 is the GST value that has been passed on to the customer and will ultimately be paid to the government by the business that provided the services.

In most countries with GST where you conduct business, you’ll need to register for GST once you earn over a certain amount. Registration requirements for GST and VAT differ by country. For example, in Singapore, if your annual turnover is above $1 Million, you will have to register for GST. Likewise, GST and VAT rates differ by country. The GST rate in Singapore is 7%, while the VAT rate in Kenya is 16%. 

What’s the difference between GST & VAT?

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.

What items are exempt from GST?

Some goods and services may be exempt from GST. Depending on where you do business, some examples would be: sale and lease of residential property, donated goods sold by non-profits, financial services, or some medical and healthcare products and services.

These exemptions would be different for each country depending on your local government tax regulations.

You should never charge GST on goods or services that are exempt from it.

What is Dual GST?

Some countries – such as Brazil, India, and Canada – use a dual GST structure compared to a unified GST structure. Countries that use a unified GST economy distribute GST across states once the federal government collects it. With a dual GST system, though, countries instead apply GST on top of their state sales tax rate.

How to Manage GST with QuickBooks

If you’re managing GST for your business, it’s best to have all of your tax information in one place. Whatever your business size or industry, QuickBooks’ GST tracking software helps busy business owners avoid nasty surprises and eleventh-hour panics before tax season rolls around.

QuickBooks’ GST tracking software lets small businesses track and report GST. QuickBooks is pre-filled with local GST tax rates in the following countries: Argentina, Bahamas, Bahrain, Barbados, Cambodia, Colombia, Costa Rica, Dominican Republic, Ecuador, Haiti, Indonesia, Israel, Jamaica, Kenya, Nigeria, Panama, Saudi Arabia, Suriname, Thailand, Trinidad And Tobago, Uganda, Venezuela. QuickBooks also allows you to add and edit tax rates, so you can use it in any country.

Whenever it’s time to create a new invoice or expenses, QuickBooks automatically calculates your GST for you . And when the end of your financial reporting period rolls around, QuickBooks automatically creates an up-to-date, accurate statement of your activity to help make filing your tax returns as easy as possible.

Easily organise your expenses into GST tax categories and track your GST on your business’s income and expenses. Businesses can even use their smartphones to take photos of receipts and match them to expenses to stay organised and ready for tax season.

QuickBooks’ reports allow you to create a tax summary that you can review at your leisure and before you file your end-of-period taxes. Access up-to-date financial reports, including balance sheets, cash flow statements, and profit and loss statements, and even create your own customised report. Track tax payable and owing, cash inflows, and outflows. Every business is different, so customise your reports to see the data that matters most to you.

Most countries that employ GST have a single consumption tax that is collected by the federal government. Some countries may have dual GST system, meaning there's a consumption tax levied by the federal government and a consumption tax levied by the state or province which you are in. In Brazil, IPI (imposto sobre produtos industrializados) is the federal consumption tax and ICMS (Imposto sobre Circulação de Mercadorias e Serviços) is the state tax collectively they comprise the Brazilian VAT.

Although they are similar, GST (Goods and Service Tax) and VAT (Value-Added-Tax) are two distinct taxation systems with different nomenclature that countries use. Some of the key differences between the two are around taxation rate, tax-free items and exemptions, and some registration requirements that would be specific for each country.