What Is a Goods and Services Tax?
Goods and Services Tax (GST) is a type of value-added tax and a sales tax. It refers to the taxes levied by the government on various goods and services. Unlike general sales tax (retail tax), goods and services tax is not solely borne by consumers. Manufacturers and distributors also need to pay this tax. GST is currently levied in several regions around the world, including Canada, Australia, New Zealand and Singapore. Hong Kong also began studying the feasibility of levying a GST in mid-2006.
Goods and Services Tax
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- Chinese name
- Goods and Services Tax
- Foreign name
- Goods and Services Tax
- Short name
- GST
- Content
- Is a type of VAT and sales tax
- Goods and Services Tax (GST) is a type of value-added tax and a sales tax. It refers to the taxes levied by the government on various goods and services. Unlike general sales tax (retail tax), goods and services tax is not solely borne by consumers. Manufacturers and distributors also need to pay this tax. GST is currently levied in several regions around the world, including Canada, Australia, New Zealand and Singapore. Hong Kong also began studying the feasibility of levying a GST in mid-2006.
Goods and Services Tax
- Canada's GST was introduced on January 1, 1991 by then Canadian Prime Minister Martin Brian Mulroney. The tax has been controversial, and it became one of the triggers of the defeat of the Canadian Progressive Conservative Party he led in the 1993 election. The Liberal Party of Canada, which won the 1993 election, promised to abolish the tax in its then-election campaign, but it did not honor the promise during its administration. Canada s GST has been reduced from 7% to 6% since July 1, 2006, and many necessities have been exempted, including food, rent, medical services, and financial services. From January 1, 2008, the GST dropped to 5%.
- The Australian GST was implemented on July 1, 2000 by then Australian Prime Minister John Howard, replacing the sales tax system previously implemented by the government, and plans to eliminate local stamp and land taxes. The Australian goods and services tax rate is 10%, which applies to most goods and services, including transportation costs. Therefore, at the beginning of the implementation, there was a big traffic jam on the Sydney Cross-sea Bridge, because many people forgot that the toll was never increased from the two Australian dollars including tax to 2.2 yuan including GST, and they needed to find a 20-cent coin instantly at the payment window.
- new Zealand
- New Zealand's GST was introduced on October 1, 1986. The initial tax rate was 10%, and then it was increased to 12.5% on July 1, 1989, and increased to 15% on October 1, 2010. It has been maintained to this day.
- Singapore's GST was introduced in 1994. The initial tax rate was 3%, then it was increased to 4% in 2003, then to 5% in 2004, and to 7% on July 1, 2007, and it has been maintained to this day. The Singapore government subsidized S $ 1.104 billion and S $ 825 million in low-income families in 1994 and 2003, respectively. Singapore's average annual GST revenue is now around S $ 4 billion. On the other hand, thanks to the GST subsidy, the Singapore government was able to reduce the local profits tax by 5%.
- Long before the transfer of sovereignty, the Hong Kong Government had repeatedly hoped to implement a goods and services tax in Hong Kong. Among them, Xia Dingji was almost formally implemented during his tenure as Financial Secretary. As inflation was very hot in Hong Kong at that time, the government hoped to curb inflation through a goods and services tax. However, at the time, the government was also implementing a representative government system. In order to avoid cracking down on the colonial government's prestige in the governance of the people, the GST was eventually terminated. After the transfer of Hong Kong's sovereignty, after several years of fiscal deficits, the Hong Kong government has the idea of levying a goods and services tax. However, because there were no concrete solutions to the current economic problems at that time, the discussion was postponed again. On July 18, 2006, the Hong Kong government finally released a consultation document on reforming Hong Kong's tax system, studying the feasibility of widening the tax base through the introduction of a goods and services tax, but it was strongly opposed by the community.
- According to the consultation document, the Hong Kong government proposed to levy a 5% goods and services tax, and the warehouse revenue increased by HK $ 30 billion. Of this amount, HK $ 7.2 billion will be used for relief measures, including cash relief allowances for Hong Kong Comprehensive Social Security Assistance, HK $ 2,000 per year for low-income families, and HK $ 3,500 annual water and rates reduction for all households. The government will also abolish the hotel room rental tax and the nominal capital registration fee, and reduce the first registration tax for automobiles and the gasoline and diesel oil taxes, reducing revenue by HK $ 1.9 billion. On the other hand, the administration fee for collecting GST is estimated at HK $ 500 million. As a result, the government's net income will increase by 20.4 billion Hong Kong dollars. However, the government has promised that the first five years after the implementation of the tax, it will give back the entire net income to the public, including consideration of relief from salaries tax and profits tax.
- About GST Conference
GST criticism
- The main criticism of the goods and services tax is that it widens the gap between the rich and the poor. Assume the goods and services tax rate is 5%. A low-income person earning $ 80,000 a year does not need to pay salaries tax. If he spends $ 70,000 a year, he will pay an additional $ 3,500. As for a high-income person who earns $ 100,000,000 a year, he will spend $ 10,000,000 a year. You can save $ 5,000,000 and pay $ 500,000 in goods and services tax, saving a total of $ 4,500,000 a year.
Goods and Services Tax Operations
- Taxes are collected on behalf of registered producers and distributors during the production and distribution process before goods and services reach the final consumer. Under the GST framework, each registered manufacturer and seller will levy a GST when selling their goods and services, and apply for a credit for the taxes paid on the goods and services they purchase. The total amount of GST paid by the producers and distributors to the tax authorities during the production and distribution process is equal to the final tax borne by consumers. The following table takes the production and sale of a suit as an example, and assumes that the GST rate is 5%, and that all manufacturers and sellers are registered under the GST system, explaining how to collect GST during the production and distribution process. .
- Description
- Raw material supplier
- Example
- Fabric producer
- (b) After the fabric manufacturer made cotton into suit fabric, it was sold to the tailor for $ 1,000 plus a goods and service tax of $ 50. Therefore, the tailor has to pay 1,050 yuan to the fabric manufacturer. When a fabric manufacturer submits a goods and services tax return, he must report the output tax of $ 50 collected from the tailor. After deducting the input tax of $ 25 previously paid for cotton, he must pay the tax authority. The net value of GST is 25 yuan (to be paid together with the GST tax return).
- tailor
- (c) The tailor made the suit to the retailer for $ 1,500 plus a goods and service tax of $ 75, or $ 1,575. The tailor received a 75 yuan output tax when selling suits. After deducting the 50 yuan input tax paid on the purchase of fabrics, the net goods and services tax that he had to pay to the tax authorities was 25 yuan.
- Retailer
- (d) The retailer displays the suit in the store and sells it to consumers for $ 2,500 plus GST $ 125. Retailers charge consumers $ 2,625. At the end of the GST tax period, the retailer must pay the net balance of 50 yuan (that is, 125 yuan of output tax minus 75 yuan of input tax) to the tax authority to fulfill its tax liability.
- consumer
- (e) Consumers purchased the suit from a retailer for $ 2,625 (including GST of $ 125). In the price he paid to the retailer, he actually fully shouldered the $ 125 tax on goods and services. Since he is not a registered person and does not use a suit as a commercial item, he must bear the full tax.
- Tax authority
- (f) Raw material suppliers, fabric manufacturers and tailors each pay $ 25 in goods and services tax to the tax authority, while retailers pay $ 50. The total goods and services tax levied by the tax authority on the suit was 125 yuan (equivalent to the goods and services tax paid by consumers). This tax is gradually collected during the production and distribution of suits.