ask the expert series

Goods and Services tax

The goods and services tax (GST) is an indirect federal sales tax that is applied to the cost of certain goods and services. The business adds the GST to the price of the product, and a customer who buys the product pays the sales price inclusive of the GST. The GST portion is collected by the business or seller and forwarded to the government. It is also referred to as Value-Added Tax (VAT) in some countries.

Most countries with a GST have a single unified GST system, which means that a single tax rate is applied throughout the country. A country with a unified GST platform merges central taxes (e.g., sales tax, excise duty tax, and service tax) with state-level taxes (e.g., entertainment tax, entry tax, transfer tax, sin tax, and luxury tax) and collects them as one single tax. These countries tax virtually everything at a single rate.

Dual Goods and Services Tax Structures

Only a handful of countries, such as Canada and Brazil, have a dual GST structure. Compared to a unified GST economy where tax is collected by the federal government and then distributed to the states, in a dual system, the federal GST is applied in addition to the state sales tax. In Canada, for example, the federal government levies a 5% tax and some provinces/states also levy a provincial state tax (PST), which varies from 8% to 10%. In this case, a consumer's receipt will clearly have the GST and PST rate that was applied to their purchase value.

Who Has to Pay GST?

In general, goods and services tax (GST) is paid by the consumers or buyers of goods or services. Some products, such as from the agricultural or healthcare sectors, may be exempt from GST depending on the jurisdiction.

In general, goods and services tax (GST) is paid by the consumers or buyers of goods or services. Some products, such as from the agricultural or healthcare sectors, may be exempt from GST depending on the jurisdiction.

How Is GST Calculated?

The goods and services tax (GST) is computed by simply multiplying the price of a good or service by the GST tax rate. For instance, if the GST is 5%, a $1.00 candy bar would cost $1.05.

What Are the Benefits of the GST?

The GST can be beneficial as it simplifies taxation, reducing several different taxes into one straightforward system. It also is thought to cut down on tax avoidance among businesses and reduces corruption.

Taking Australia as an example, any company shipping more than AUD75,000 of goods per year is legally bound to register with the Australian Tax Office and collect GST on their behalf.

forward2me must collect GST on Low Value Imported Goods - that is anything less than AUD 1,000 in value, and then pay this to the Australian Tax Office once per quarter.

The reason for retailers and forwarders collecting this tax, is to move the burden from tax officers at the Australian border, to the retailers and forwarders that are serving the Australian market.

If a company is only shipping small amounts to Australia, then they will not need to register for or collect GST.  Instead, the package is held at the border until tax is paid.  The result is no extra cost or saving, just a slower delivery.  There is no avoiding GST.

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