Finance
VAT vs GST vs Sales Tax: How Each One Is Collected
Why VAT and GST are the same tax under two names, how a US-style sales tax differs, one product traced through three businesses under each system, and how Canada mixes both.
By TooleemPublished Facts checked
Short answer
VAT and GST work the same way: every business in the chain charges the tax on its sales and deducts the tax it paid on its purchases, so the government receives the tax in slices and the total equals the rate on the final price. "GST" is simply the name used in Canada, Australia, New Zealand, Singapore and India. A US-style sales tax is different: it is charged only once, on the final sale to the consumer, and businesses avoid paying it on goods they resell by giving their supplier a resale certificate. For the shopper a 20% VAT and a 20% sales tax on the same final price cost the same; what changes is who collects it and how much leaks into business costs.
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Canada GST/HST Calculator
Add or remove GST, HST, PST or QST for any Canadian province, with each tax shown separately.
On this page
How VAT and GST are collected in slices
Swipe sideways to see every column.
| Stage | Sale price before tax | VAT charged | VAT deducted on purchases | VAT paid to the government |
|---|---|---|---|---|
| Supplier sells materials to the maker | 20.00 | 4.00 | 0.00 | 4.00 |
| Maker sells the product to a shop | 50.00 | 10.00 | 4.00 | 6.00 |
| Shop sells to the consumer | 80.00 | 16.00 | 10.00 | 6.00 |
| Total | 16.00 |
This is the principle written into the EU VAT Directive: a tax on consumption exactly proportional to the price, whatever the number of transactions before it. In Canada the deduction is called an input tax credit: a GST/HST registrant recovers the tax paid on purchases used in its commercial activities.
How a retail sales tax is collected once
| Stage | Sale price | Sales tax charged | Why |
|---|---|---|---|
| Supplier sells materials to the maker | 20.00 | 0.00 | bought for resale or as part of a product |
| Maker sells the product to a shop | 50.00 | 0.00 | shop gives a resale certificate |
| Shop sells to the consumer | 80.00 | 16.00 | final retail sale |
- Resale certificates: in California, a certificate taken in good faith and in proper form relieves the seller from the sales tax on that sale (CDTFA Regulation 1668). Without it, the sale is presumed taxable.
- Business purchases for own use (equipment, supplies) are taxed. That tax is not recovered and ends up in prices, which a VAT avoids.
- The whole tax is collected at the last step, so if the retailer fails to collect it, the government loses all of it, not one slice.
Canada uses both systems at once
| Province | Federal part | Provincial part | Type of provincial tax |
|---|---|---|---|
| Alberta, territories | GST 5% | none | none |
| Ontario | HST 13% (5% federal + 8% provincial) | included in HST | value-added, one return |
| Nova Scotia | HST 14% | included in HST | value-added, one return |
| New Brunswick, Newfoundland and Labrador, Prince Edward Island | HST 15% | included in HST | value-added, one return |
| Quebec | GST 5% | QST 9.975% | value-added, separate return to Revenu Québec |
| British Columbia, Manitoba | GST 5% | PST 7% | retail sales tax |
| Saskatchewan | GST 5% | PST 6% | retail sales tax |
In British Columbia a registered business charges PST on its sales and also pays PST on many items it uses in the business, the typical pattern of a retail sales tax.
Do the calculation
Canada GST/HST Calculator
Add or remove GST, HST, PST or QST for any Canadian province, with each tax shown separately.
Sources
The figures and rules in this guide come from these documents.
- Council Directive 2006/112/EC on the common system of value added tax, Article 1EUR-Lex, European UnionVAT as a consumption tax exactly proportional to the price, charged after deducting the VAT on cost components.
- Input tax creditsCanada Revenue AgencyRegistrants recover GST/HST paid on purchases used in commercial activities.
- GST/HST calculator (and rates)Canada Revenue AgencyGST, HST and PST rates by province, including Nova Scotia at 14% from April 1, 2025.
- Calcul des taxes (TPS et TVQ)Revenu QuébecQST of 9.975% on the selling price; 14.975% in one step.
- Regulation 1668, Sales for ResaleCalifornia Department of Tax and Fee AdministrationResale certificates relieve the seller from sales tax; purchases not specified for resale are presumed taxable.
- B.C. provincial sales tax (PST)Province of British ColumbiaGenerally 7%; registered businesses also pay PST on items they use in the business.
Facts checked
General information, not legal, tax or financial advice. Rules change; check the cited sources for your own case.
Related guides
VAT and GST Rates by Country, Checked at the Source
Standard and reduced VAT and GST rates for the UK, Ireland, Germany, France, Spain, the Netherlands, Canada by province, New Zealand, South Africa and Singapore, each from the tax authority.
How to Remove VAT or GST from a Gross Price: Divisor Table
Why taking the rate off a gross price is wrong, the divisor and VAT-fraction methods, a divisor table from 5% to 27%, worked examples in six countries and invoice rounding.