The United States does not have either a goods and services tax or a value added tax, but most countries do. Although most sources maintain that GST and VAT are simply two different names for the same tax, some do not. Reach, an international company that specializes in GST tax software, for example, distinguishes between them.
The Ideas Behind the GST
Countries that have gone to a GST generally do so as a means of consolidating various taxes into a single tax on all goods and services. The GST often replaces some combination of excise taxes, duties and taxes on behavior, which include taxes on betting, luxury goods, entertainment and entry into the country.
GST is imposed at every stage of the supply chain. A 6 percent tax, for example, may be imposed on the suppliers of raw materials, again upon the manufacturer who uses those materials and then successively on the distributor, retailer and consumer. While this appears at first to be a burdensome accumulation of taxes, because each payer of the GST is also tax-credited for that payment, the actual burden is significantly lower.
The fundamental ideas underlying the GST are:
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• Equity: Everyone pays. Countries, such as Spain and Greece, that have attempted to impose many different kinds of taxes often end up with many wealthy tax cheats and many tax-burdened urban poor.
• Efficiency: It replaces the time-consuming and manpower-intensive imposition of several different taxes with a single tax, thus lowering overhead expenses for government, producers and consumers.
• Accountability: Many countries have many relatively high taxes -- for example on ownership of real estate or even specific entities such as swimming pools -- but in the confusion of many different taxes and avenues of collection, these taxes are often uncollected. Because a record of payment must be made at every transaction in the sequence from origin to consumer, the GST is relatively easy to police and therefore to collect.
The Difference Between GST and VAT
Although explanations of the difference between the two taxes are plentiful on the Internet, most government ministries treat them as one tax with two names. In a 2006 position paper, "International VAT/GST Guidelines," the International Organisation for Economic Cooperation and Development begins by noting that the VAT is "also called the Goods and Services tax." Other countries' finance ministries, such as Malaysia's and Botswana's, make similar assertions. No country has both a VAT and GST.
Nevertheless, pursuing the difference or its lack may be a linguistic dead end. Since the implementations of this tax, whatever it is called, vary so significantly from one country to another, it is relatively easy to discuss the difference between one country's VAT and another country's GST. But it is equally easy to discuss the differences in the taxes of two countries, both of which call their tax a VAT, or between the taxes in two other countries, both of which call their tax a GST.
There is, however, a difference between the GST/VAT and a sales tax. Sales taxes are not necessarily imposed at every stage of the supply chain and may be imposed only on the consumer. Many countries have both a comprehensive GST/VAT and a sales tax. In Canada, for example, some provinces have what the Canada Revenue Agency calls a "harmonized GST and HST," the latter being a provincial sales tax that is harmonized with the country's federal GST. In provinces that have not elected to combine the two, there are two separate taxes -- the federal GST and a provincial sales tax.