VAT / GST / Sales Tax Calculator — Add or Remove Tax

What Is VAT?

Value Added Tax (VAT) is a consumption tax levied on the value added to goods and services at each stage of production or distribution. Unlike a simple sales tax collected only at the point of final sale, VAT is collected incrementally — each business in the supply chain charges VAT on its sales and claims back the VAT it paid on its purchases, remitting the net amount to the government. The result is that the tax burden ultimately falls on the final consumer, who cannot reclaim VAT.

VAT was first introduced in France in 1954 and has since been adopted by over 160 countries. It is the primary indirect tax in the European Union, United Kingdom, Australia, New Zealand, Canada, and many other nations. VAT is generally considered more economically efficient than a sales tax because it is harder to evade — each business in the chain has an incentive to invoice properly to claim their input tax credit.

In the United Kingdom, the standard VAT rate is 20%, with a reduced rate of 5% applying to domestic energy and some goods, and a zero rate for most food, children's clothing, and books. Businesses with taxable turnover above the VAT threshold (£90,000 as of 2024) must register for VAT and file regular returns with HMRC.

What Is GST?

Goods and Services Tax (GST) is functionally identical to VAT — it is a broad-based consumption tax charged at each stage of the supply chain — but the name "GST" is used in Australia, New Zealand, Canada, India, Singapore, and several other countries. Despite the different name, the mechanism is the same: businesses collect GST on their sales, claim credits for GST paid on inputs, and remit the net to the tax authority.

Australia's GST has been 10% since its introduction in 2000, applied to most goods and services. Essential items — fresh food, healthcare, and education — are GST-free. New Zealand's GST is 15% and is particularly broad, with very few exemptions. Canada's federal GST is 5%, but most provinces also levy a separate Provincial Sales Tax (PST) or a harmonized HST that combines federal and provincial rates, ranging from 5% in Alberta (no provincial tax) to 15% in Atlantic provinces.

India's GST, introduced in 2017, replaced a complex patchwork of central and state taxes. India uses four primary GST slabs: 5%, 12%, 18%, and 28%, with the rate varying by product category. Luxury goods and sin goods (tobacco, aerated drinks) attract the 28% rate plus an additional cess.

How VAT and GST Differ from US Sales Tax

The key difference between VAT/GST and US sales tax is the collection mechanism. VAT and GST are multi-stage taxes collected throughout the supply chain, with each business claiming credits for taxes paid. US sales tax is collected only at the final point of sale — retailers collect it from consumers and remit it to the state. Intermediate business purchases are generally exempt.

US sales tax is administered at the state and local level, not federally. This creates enormous complexity: the US has over 10,000 distinct sales tax jurisdictions, each with different rates and exemption rules. Rates range from 0% (no sales tax) in states like Oregon, Montana, New Hampshire, Delaware, and Alaska, to combined state-and-local rates exceeding 10% in some Louisiana and Tennessee jurisdictions. Businesses operating across state lines must navigate nexus rules — the question of whether they have sufficient presence in a state to be required to collect that state's tax.

UK VAT Rates Explained

The United Kingdom operates three VAT rates. The standard rate of 20% applies to the majority of goods and services sold by VAT-registered businesses. The reduced rate of 5% applies to domestic fuel and power, children's car seats, women's sanitary products, residential property conversions, and some energy-saving installations. The zero rate (0%) applies to most food and drink (excluding alcohol, confectionery, and restaurant meals), children's clothing and footwear, books and newspapers, public transport, and prescription medicines.

Some supplies are VAT-exempt rather than zero-rated — the practical difference is that businesses making exempt supplies cannot recover the VAT on related costs, whereas zero-rated businesses can. Exempt supplies include most financial services, insurance, education, healthcare, and postal services. Businesses must register for VAT once their taxable turnover exceeds the registration threshold in any rolling 12-month period.

Australian GST Explained

Australia's GST is charged at a flat 10% on most taxable supplies of goods, services, and rights in Australia. The tax is administered by the Australian Taxation Office (ATO), and businesses with a GST turnover of A$75,000 or more (A$150,000 for nonprofits) must register and lodge Business Activity Statements (BAS) to report and remit GST.

GST-free supplies include most basic food (unprocessed foods sold in a supermarket), health and medical services, educational courses, childcare, exports, and some financial services. Input-taxed supplies — such as financial services and residential rents — are neither taxable nor GST-free; providers cannot claim GST credits on inputs related to these supplies.

US Sales Tax by State

US sales tax rates vary widely by state. As of 2024, states with no sales tax include Oregon, Montana, New Hampshire, Delaware, and Alaska (though Alaska allows local taxes). The highest combined state and average local rates include Tennessee (~9.55%), Louisiana (~9.45%), Arkansas (~9.43%), and Alabama (~9.25%). Most states have rates between 6% and 8% at the state level, with local add-ons that can push effective rates higher.

The 2018 Supreme Court decision in South Dakota v. Wayfair fundamentally changed US sales tax for online sellers. States can now require out-of-state sellers to collect and remit sales tax once they exceed an economic nexus threshold — typically $100,000 in sales or 200 transactions in a state — even without a physical presence. This has dramatically increased compliance requirements for e-commerce businesses selling nationally.

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