{"id":293084,"date":"2025-05-12T11:07:26","date_gmt":"2025-05-11T23:07:26","guid":{"rendered":"https:\/\/www.reckon.com\/au\/?post_type=sbh&p=293084"},"modified":"2026-04-13T12:49:14","modified_gmt":"2026-04-13T00:49:14","slug":"what-is-vat","status":"publish","type":"sbh","link":"https:\/\/www.reckon.com\/au\/small-business-resources\/tax\/what-is-vat\/","title":{"rendered":"What is VAT?"},"content":{"rendered":"

[et_pb_section fb_built=”1″ custom_padding_last_edited=”on|phone” _builder_version=”4.23″ custom_padding_tablet=”” custom_padding_phone=”0px||||false|false” da_disable_devices=”off|off|off” locked=”off” global_colors_info=”{}” da_is_popup=”off” da_exit_intent=”off” da_has_close=”on” da_alt_close=”off” da_dark_close=”off” da_not_modal=”on” da_is_singular=”off” da_with_loader=”off” da_has_shadow=”on”][et_pb_row column_structure=”1_3,2_3″ _builder_version=”4.23″ background_size=”initial” background_position=”top_left” background_repeat=”repeat” width=”100%” custom_padding=”||0px||false|false” global_colors_info=”{}”][et_pb_column type=”1_3″ module_class=”table-contents” _builder_version=”4.23″ background_color=”#f3f2f6″ custom_padding=”25px||25px||true|false” sticky_position=”top” sticky_limit_bottom=”section” sticky_position_tablet=”top” sticky_position_phone=”none” sticky_position_last_edited=”on|desktop” border_radii=”on|24px|24px|24px|24px” global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text _builder_version=”4.23″ text_font=”||||||||” global_colors_info=”{}” background__hover_enabled=”on|desktop”][\/et_pb_text][\/et_pb_column][et_pb_column type=”2_3″ _builder_version=”4.16″ custom_padding=”|||” global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text admin_label=”Body” _builder_version=”4.27.6″ header_2_font_size=”32px” hover_enabled=”0″ header_2_font_size_tablet=”30px” header_2_font_size_phone=”26px” header_2_font_size_last_edited=”on|tablet” global_colors_info=”{}” sticky_enabled=”0″]Value-added tax (VAT) is a tax applied to the value of goods and services. It is a consumption tax system used worldwide for governments to raise revenue. As of 2020, over 160 countries use a VAT system.<\/p>\n

Sales tax system vs VAT system<\/h2>\n

[\/et_pb_text][et_pb_image src=”https:\/\/www.reckon.com\/au\/wp-content\/uploads\/2025\/05\/Sales-Tax-vs-VAT-explained-icon.png” alt=”Sales tax vs VAT, local sales taxes are charged at final point of sale, vat is a consumption tax levied at multiple points of production and supply” title_text=”Sales Tax Vs VAT Explained Icon” align=”center” _builder_version=”4.27.6″ _module_preset=”default” global_colors_info=”{}”][\/et_pb_image][et_pb_text _builder_version=”4.27.6″ _module_preset=”default” global_colors_info=”{}”]<\/p>\n

The main difference between the sales tax and VAT systems is that VAT is collected at different points of the supply chain\/production process, whereas sales tax is paid once and charged at the point of sale to the final consumer.<\/p>\n

In Australia, our VAT system is called the\u00a0Goods and Services Tax<\/a>\u00a0(GST), which is charged at various points in the production process. Businesses pay and collect GST throughout the supply chain, while consumers bear the cost at the final sale.<\/p>\n

Depending on how much GST they have received or paid, businesses may be able to claim input tax credits or pay more on their\u00a0Business Activity Statement<\/a>. Ultimately, the consumer pays the tax.<\/p>\n

VAT system in Australia<\/span><\/p>\n

GST is one of the Federal government’s primary revenue-raising policies.<\/p>\n

Goods and Services Tax (GST)<\/h3>\n

GST (link) in Australia is calculated at 10% of the cost of the good or service sold. To calculate the GST on an item, you multiply the value of the cost of the good or service by 1.1. Or if you are trying to figure out the amount of GST on an item, you divide the entire price (GST inclusive) by 11.<\/p>\n

Let’s look at an example like a $100 keyboard and find both the inclusive and exclusive:<\/p>\n

Inclusive price:<\/strong><\/p>\n