What is GST?
Goods and Services Tax (GST) operates similarly to VAT (value-added tax). This tax is applicable on goods and services at every level of the distribution chain. Governments where GST applies, typically impose it at every level of the distribution process.
Take the instance of a factory. The factory introduces the GST when it sells goods to a wholesaler. The wholesaler then adds on its GST when it sells to a retailer. However, the wholesaler has the opportunity to get back the original amount it paid in GST. Therefore, the tax added at the level of the wholesaler is only applied to the net price (which is the difference between the manufacturer and the wholesaler’s price). The same rule applies for every subsequent transaction. The exception is made for end consumers who cannot claim the tax refund since they are the last in this chain.
In doing so, it achieves two things:
Ensure the same amount of tax is paid in the last transaction.
The government is certain to collect the tax since it is collected with every consecutive transaction.
How to use GST Calculator?
To calculate GST, follow these steps:
Determine the net price (the price without the GST). We'll go with €40 for this example.
Identify the GST rate. In our case, we'll consider a rate of 10%. If expressed in percentages, divide it by 100. So it becomes 10 / 100 = 0.1.
To figure out the tax amount: multiply the net price by the GST rate. €40 × 0.1 = €4.
Calculate the gross price: add the tax amount to the VAT exclusive price - €40 + €4 = €44.
An Example to Demonstrate the Calculator
Suppose you are a retailer, selling a product with a net price of €40. Let's also assume the GST rate in your jurisdiction is 10%. Using the aforementioned process:
Your product's net price is €40.
Your GST rate is 10%. You convert this to a proportional number by dividing it by 100 to get 0.1.
To calculate the tax amount: multiply the net price with the GST rate. Hence, €40 x 0.1 = €4.
To determine the gross price, just add the tax amount to the VAT exclusive price — €40 + €4 = €44.
Therefore, if you’re selling the said product in a jurisdiction where the GST is 10%, you will charge your customers €44, where €4 is the GST.