Starting a business is an exciting venture. There’s a lot to do, so you’re often kept busy with tasks like stocking products, hiring staff, and designing your office space. Though that part of the journey is fulfilling in itself, the real magic happens when you start to get customers and start earning a decent income. That said, as you make money, you shouldn’t forget your obligations to the government.
Every business is required to pay different kinds of taxes for operating. In a number of countries, one such tax required of businesses is the goods and services tax, or GST.
If you’ve recently started a business that’s required to pay GST, this article will guide you, as it discusses the basics of the goods and services tax.
What Is GST?
GST is a tax levied on certain services and goods sold for domestic consumption. It is also referred to as value-added tax (VAT) in some countries, such as the Philippines.
This tax is included in the final price of a product or service. When a customer buys a product or service, they pay the sales price, which includes the GST. The business then collects the GST and pays it to the government.
How Much Is GST?
The GST percentage varies depending on the country. For instance, New Zealand has 15% GST, while South Korea has a standard GST rate of 10%.
Some countries also implement a dual GST structure. This means that federal GST is added along with the state sales tax. For instance, in Canada, the federal government requires 5% GST, and some provinces require a provincial state tax, or PST, which can range between 7% and 10%. In those provinces or states, consumers will have to pay for the GST and PST, which are added to a product or service’s purchase price.
In addition, some countries, like New Zealand, have a 0% GST rate for some goods and services, such as exports or lands sold between GST-registered businesses. In such cases, even if you don’t collect GST, you’re required to report the sales when filing for a return.
Understanding what GST is, is one thing; however, calculating it to get the final price of your product or service is a little more difficult. If you’d rather not do the calculations yourself, you don’t have to settle for manually computing the GST. There are several tools that can do it for you, such as Afirmo’s GST calculator.
If you prefer to compute it manually though, there is a way to do it. If you want to add the GST to the current price of your service or product, you can simply multiply the price by your country or state’s GST percentage. This will give you the amount to add on.
Let’s say you’re from New Zealand. A sample computation would look like this:
NZD$100 (product price) × 15% (New Zealand GST rate) = NZD$15 (GST amount)
The final price for the product, including GST, would then be NZD$115.
Who Has To Register
Just because you’re starting a business doesn’t mean you should register for GST. Registration is required only if any of these apply to your business:
- It turns over NZD$60,000 or more annually. (Your turnover is your total income before GST and expenses.)
- It’s expected to turn over NZD$60,000 in the next 12 months.
- GST is included in the price of the services or goods you sell.
How To Register
If you’re required to register for GST or you want to register voluntarily, you can do so through your government’s online services.
Taxable Filing Frequency
During the registration process, you’ll be asked to choose how often you’ll file for GST returns. In most cases, you can choose to file monthly, bi-monthly, or every six months, depending on your business revenue. For instance, only businesses with sales of over NZD$24 million in 12 months are recommended to file monthly.
What To Do Once Registered
Once your business is registered for GST, you need to ensure that you do the following:
- Charge customers with GST.
- Pay any GST you owe to the government.
- File GST returns.
- Keep GST records.
What To Include In A GST Invoice
If you sell goods or services, you’re required to issue tax invoices or receipts. Every tax invoice you issue should have this standard information:
- The heading ‘Tax invoice’ in a prominent place
- The trade name and GST number of your business
- The date the invoice was issued
- Description of the services or goods sold
- Price breakdown (subtotal, total GST, and total amount due)
With the information given above, you now essentially have a basic understanding of GST and how to comply with the requirements for it. Though it’s only one of several taxes you will have to file for your business, it helps to have a clear idea of it and the processes it entails.