Difference between GST and sales tax

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Forums › Finance and wealth management › Difference between GST and sales tax

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matisyahu

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#2019446 20-May-2018 19:26

Fred99:

kobiak:

i believe GST is constant and sale tax could vary from sale item to another.

like alco could be 20% sale tax, but milk only 5%

No.

GST is applied (to "value added") on every transaction in a supply chain, a sales tax is collected only at the final point of (retail) sale.

GST is added at the end point (at point of sale) not each step of the way which is why businesses claim back GST because they're inputs into the production and not the final product, the final product has the GST.

"When the people are being beaten with a stick, they are not much happier if it is called 'the People's Stick'"

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gzt

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#2019447 20-May-2018 19:27

I read it yeah. None of your examples would be exempt under the proposal. Neither the article or your comments identify any edge cases of concern. Fresh in the sense of fruit and vegetables in the produce section of the supermarket and noncured meats in the butchery section.

Yes, sell it in a sandwich or burger service and it becomes subject. Pretty simple for these categories.

tieke

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#2019535 20-May-2018 20:54

gzt: I read it yeah. None of your examples would be exempt under the proposal. Neither the article or your comments identify any edge cases of concern. Fresh in the sense of fruit and vegetables in the produce section of the supermarket and noncured meats in the butchery section.

Yes, sell it in a sandwich or burger service and it becomes subject. Pretty simple for these categories.

We've gone a bit off-topic here, but the article did give a couple of points against this. One of them was that the farmers/butchers who produce the fruit/meat in your example (and the people who transport it, make boxes to transport it etc) currently claim back all the GST on items and processes needed to get this food to the customers, as with a clean GST law the end-customer is the one who actually pays GST.

Under the "if these meats are used in a sandwich, GST will be charged to the end-customer, but if they want to make their own sandwich we won't" rule, the people back down the supply chain shouldn't be able to claim GST back on their non-GST eligible products, but how are they to know what percentage that will be, and how much is it going to cost us to monitor if they are loading GST-exempt items on their accounting sheet to their own advantage?

Also once you exclude one thing from GST, it becomes much harder to stop further exclusions becoming an easy political grab for approval - "Fresh fruit and veges are GST exempt, why not fresh milk? Why not extend it to baby formula?".

One of the major point of Eric Crampton's article is that the simplicity of GST vastly reduces monitoring and accounting costs, not to mention the government cost of legal battles for all of the inevitable fringe cases.

Another point is that even we didn't mind destroying the GST system in order to try and reduce the prices of some food items by 15%, supermarkets set their prices by what customers will pay, rather than what the items cost - I highly doubt that a supermarket would decide that although people have no problem paying $3.50/kg for mandarins that they should charge $2.97 instead.

Anyway, I am far from being an economist, which is why I recommended the article - I hadn't previously thought about how good our relatively simple tax regime is compared to many others, and how easy it would be to muck it up, which is the basic point of most of the other articles in that series as well :)

gzt

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#2019659 21-May-2018 10:27

It will take me a while to respond to each page point I'll make a start anyway..

tieke: Another point is that even we didn't mind destroying the GST system in order to try and reduce the prices of some food items by 15%, supermarkets set their prices by what customers will pay, rather than what the items cost - I highly doubt that a supermarket would decide that although people have no problem paying $3.50/kg for mandarins that they should charge $2.97 instead.

This is kind of true but there is more than one supermarket operator and additionally fruit and vege shops in most places and the level of competition is healthy. Competition does tend to cause a commodity-ish price to find a level reflecting the efficiency of the operators.

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