What is GST?
The Goods and Services Tax (GST) refers to an indirect domestic tax applied to most of the goods and services sold in a country internally.
Consumers have to pay this tax, and the tax value is usually added to the final pricing of the product. GST is used in many countries for ease of internal taxation.
Significance of GST
Tracking GST can help businesses form their audits better.
- GST has simplified the methods of taxation.
- Instead of paying different types of taxes for different materials, a GST can make the process more comprehensive and less complicated.
- Different products have different GST on them. Depending on whether the item is a necessity or a luxury item, GST will be lower or higher on the product. This is easier to track compared to a different tax for each item.
Prerequisites of GST
- GST is a value-added tax system that an entity has to register for if the business’s per-annum taxable supply value is more than a certain amount. For example, in Singapore, where GST is prevalent, businesses must register for it if their annual revenue is more than SGD 1 million.
- Businesses can submit their registration application through the correct government website or an agent. In Singapore, applications are made through the IRAS website.
Use Case with GST
Suppose a customer buys a smartwatch on which the GST is 25%. This 25% tax will be added to the watch’s price. To attain the product, the customer must pay the total amount (watch’s price + GST).