How to Comply With Goods and Service Tax When You Ship to Countries That Impose It
A goods and service tax is a government levy added to the cost of goods or services. These taxes are imposed to collect revenue and are a form of indirect tax that is collected and sent on by businesses who sell the goods or services, rather than directly to the government. GST is also known as Value-Added Tax (VAT) in some countries.
When you ship to customers in countries that impose GST, there are a few steps that you need to take to comply with the law. First, you need to know which countries’ laws apply to your business and how they differ. Secondly, you need to determine what types of goods or services you sell that are taxable in those countries. Lastly, you need to collect and remit the correct amount of tax on those sales.
The country’s rules on GST will depend on a few factors, including whether it has a single or dual system of GST. A common dual system includes a Central GST goods and service tax – CFO Accounts & Services and a State GST, with the former being collected and remitted by the central government and the latter being collected and remitted by the states. Other common systems include a single, national GST that is collected and remitted by the central government, as well as a single, national VAT with local collection and remittance by jurisdictions.
In broadening their states’ taxation of services, policymakers have struck what arguably is a reasonable balance between the resource allocation concerns raised by economists and their states’ revenue needs. They have largely avoided taxing services purchased almost exclusively by businesses, instead targeting household services like haircuts and mixed business/household services like landscaping. Moreover, in areas where a specific industry has made a compelling case that taxation of a service would have a negative economic impact, elected officials are typically willing to enact industry-specific exemptions.
As the digital world blurs the line between products and services, it’s getting harder to determine which kinds of services are taxable. For example, is an ebook a product or the ability to download it a service? And what about software-as-a-service, which has been argued to be more of a service than a software program? The answer to these questions is different in every jurisdiction.
Many companies are hiring an army of accountants to make sense of the complex GST rules. For businesses that sell customer support, installation, or warranty services in tandem with physical goods, the situation is particularly challenging. Fortunately, cloud-based accounting and tax solutions can simplify the process and help ensure compliance with GST laws around the globe.
One of the primary objectives of GST is to eliminate the “cascading effect” of taxes that occurred under previous indirect tax regimes. Under these previous regimes, different taxes were applied to the same good or service at multiple stages in its supply chain, which led to higher prices for consumers than needed. By imposing uniform tax rates, the introduction of GST has helped reduce these price distortions and increase domestic consumption and overall indirect tax revenues.