One idea, three names
Consumption taxes shift the burden to the buyer while making the seller the collector. You add the tax to your price, hold it in trust, and remit it to the government on a schedule. The money was never yours - the most common small-business tax disaster is spending it.
It's not your money
Tax you collect is a liability from the moment it hits your account. Park it mentally (or literally, in a separate account) - spending collected tax is how solvent businesses die at filing time.
How the three systems differ
| GST | VAT | Sales Tax | |
|---|---|---|---|
| Where | India, Australia, NZ, Canada, Singapore | UK, EU, GCC, most of the world | United States |
| Charged at | Every stage of the supply chain | Every stage of the supply chain | Final retail sale only |
| Input credits | Yes - tax on purchases offsets tax collected | Yes - same mechanism | No - but resale exemptions exist |
| Typical filing | Monthly or quarterly returns | Quarterly returns | State-by-state, varies wildly |
GST vs VAT vs Sales Tax at a glance
Input tax credit: the part that protects your margin
Under GST and VAT you offset the tax you paid on business purchases against the tax you collected on sales, remitting only the difference. This is why compliant purchase invoices matter: no valid invoice, no credit - you eat the tax as a cost.
Worked example
You collect ₹18,000 GST on sales this quarter and paid ₹11,000 GST on business purchases with valid tax invoices. You remit ₹7,000. Lose the paperwork for those purchases and you remit the full ₹18,000 - an 11,000-rupee paper cut.
Registration: know your threshold
Every jurisdiction sets a revenue threshold above which registration is mandatory - and most penalize from the date you should have registered, not the date you noticed. If you're within 20% of your threshold, start the paperwork now.
Crossing the threshold checklist
- Confirm your jurisdiction's current threshold (they change)
- Register before you cross, not after
- Update every invoice template with your registration number
- Start charging tax from the effective date - no grace period
- Set aside collected tax weekly
- Diarize every filing deadline for the year
Filing without drama
The filing rhythm
- 1
Reconcile first
Your return is only as good as your books. Close the period before you file from it.
- 2
Match credits to invoices
Every input credit claimed should trace to a compliant purchase invoice you can produce.
- 3
File even at zero
A nil return filed on time costs nothing. A nil return not filed collects penalties like any other.
- 4
Pay from the parked funds
If you've been setting collected tax aside, payment day is a non-event.
I sell to other businesses - do I still charge tax?
Under GST/VAT, usually yes - your business customer claims it back as input credit. Under US sales tax, B2B sales for resale are typically exempt with a resale certificate.
What about selling across borders?
Exports are commonly zero-rated (you charge 0% but still report). Digital services often follow the customer's country rules - e-commerce platforms increasingly collect for you, but the liability stays yours to verify.
Can I claim credits on everything I buy?
Only business-purpose purchases with compliant invoices, and most systems exclude specific categories (entertainment, personal-use assets). When mixed-use, claim the business proportion.