VAT (Value Added Tax) and GST (Goods and Services Tax) are both consumption taxes levied on the purchase of goods and services, typically at each stage of the supply chain. While they function similarly, their terminology varies depending on the country implementing them. In essence, both taxes ensure that the final consumer bears the tax burden, while businesses collect and remit the tax to the government.
The primary differences between VAT and GST arise from the specific regulations established by each jurisdiction. These variations include the applicable tax rates, the categories of goods and services that are either exempt or zero-rated, the threshold for mandatory registration, and the compliance obligations imposed on businesses. Despite these differences, the core mechanism remains the same: businesses can generally claim input tax credits for the VAT or GST paid on their purchases, ensuring that the tax applies only to the value added at each stage of production and distribution.
