VAT vs GST vs Sales Tax: What's Different, and What Isn't

Updated: 2 September 2026

VAT, GST and sales tax all tax what people buy rather than what they earn. What differs is where in the chain it is collected, whether the label price already includes it, and — the difference that causes real errors on invoices — how you work backwards from a total.

Three names, two designs

VAT (value added tax) is collected in stages. Every business charges tax on what it sells and reclaims the tax it paid on what it bought, sending only the difference to the tax authority.

GST (goods and services tax) is the same design under a different name. Some countries split the revenue internally — India divides it between central and state components depending on whether a sale crosses a state border — but the mechanism is the same.

Sales tax, as used in the United States, is single-stage: charged once, at the final retail sale to whoever will actually use the item. A business buying stock to resell gives the seller a resale certificate, so nothing is charged at the steps in between.

Where each name is used

• VAT — the United Kingdom, the European Union, and much of Africa, Asia and Latin America.
• GST — India, Australia, New Zealand, Singapore and Canada, among others. Canada layers provincial taxes on a federal GST, and several provinces merge the two into one harmonised rate.
• Sales tax — the United States, which has no federal sales tax or VAT. States set a base rate and counties, cities and districts often add to it. A few states levy no statewide sales tax (Alaska, Delaware, Montana, New Hampshire and Oregon), though local sales taxes exist in parts of Alaska.

Rates, and the categories they apply to, differ by country and change over time, so confirm rather than assume.

Inclusive or exclusive: what the price shows

In most VAT and GST countries the consumer price already includes the tax — EU and Australian rules require the displayed price to be the final one — while quotes between businesses are usually given without it, marked "plus VAT". In the United States shelf prices are normally pre-tax, with tax added at the register. That decides which direction you calculate in.

The arithmetic, both directions

If the tax is a straight percentage of the pre-tax price, the sums are identical whatever it is called:

1. Adding tax: gross = net × (1 + rate). A net of 100 at 20% gives 120.
2. Removing tax: net = gross ÷ (1 + rate). A gross of 120 at 20% gives 100, so the tax inside it is 20.

The tax inside an inclusive price is therefore gross × rate ÷ (1 + rate) — at 20%, exactly one sixth of the total; at 5%, one twenty-first.

Why subtracting the percentage is wrong

Because the two percentages start from different figures. The tax was calculated on the net price, but subtracting it from the total applies the rate to the gross, which is larger. Take 20% off a gross of 120 and you get 96; the correct net is 100, so you are out by 4.

At low rates the gap hides itself: 5% off 105 gives 99.75 against a true net of 100, a quarter of a unit easily lost in rounding. That is how the habit survives — until someone applies it at a high rate and the accounts stop balancing.

Which calculator to open

Pick the one matching your paperwork: VAT Calculator, GST Calculator or Sales Tax Calculator. All three run the arithmetic above, take a custom rate with decimals, and assume no currency — amounts work in any currency. Where a discount is involved, take it off first with the Discount Calculator, then tax what remains.

What a calculator cannot decide for you

These tools apply one rate to one amount. They do not know which rate your goods fall under, whether a reduced, zero or exempt category applies, which country may tax a cross-border sale, or how much input tax you can reclaim. The figures illustrate the arithmetic; they are not tax advice, so check anything you file with your tax authority or an accountant.