VAT, GST and sales tax all aim at the same target — taxing what consumers spend — but the plumbing is very different. Get the distinction wrong and you over-collect, under-pay, or end up with surprise audit bills.
VAT (Value Added Tax)
Used in 170+ countries including the entire EU and the UK. Charged at every stage of the supply chain. Businesses charge output VAT on sales and reclaim input VAT on purchases, remitting the difference. The final consumer bears the full tax because they cannot reclaim. Self-policing through the input/output mechanism.
GST (Goods and Services Tax)
Used in Australia, New Zealand, Canada, India, Singapore and others. Functionally a VAT in most jurisdictions — same input/output mechanism, same reclaim rules — but called GST. Canada layers a federal GST and provincial taxes (PST/QST), or a harmonised HST in some provinces. India runs CGST + SGST + IGST depending on whether the sale crosses a state line.
US Sales Tax
The outlier. Collected only at the final retail sale, not at intermediate stages. No input/output mechanism — businesses give suppliers a resale certificate to buy stock tax-free, and only charge tax when they sell to an end consumer.
Rates and rules are set state-by-state (45 states) and often city-by-city, leading to 13,000+ taxing jurisdictions. Since the Wayfair ruling (2018), out-of-state sellers must register and collect in any state where they cross the "economic nexus" threshold — typically $100,000 of sales or 200 transactions.
Why it matters in practice
- Cashflow. VAT/GST sellers hold collected tax for up to 3 months before remitting; US sellers usually file monthly per state.
- Compliance burden. One EU country = one VAT registration. One US state = one sales tax registration. Sell to all 45 states and you have 45 registrations, 45 filing calendars, and 45 audit risks.
- Pricing. EU/UK prices are advertised gross (tax included). US prices are advertised net (tax added at checkout).
- Reclaim. A B2B buyer in a VAT/GST country recovers tax on inputs. A US business pays sales tax on most operating purchases with no reclaim mechanism.
Quick comparison
| VAT | GST | US Sales Tax | |
|---|---|---|---|
| Charged at | Every stage | Every stage | Final sale only |
| Reclaim by businesses | Yes | Yes | No |
| Rate setter | National | National (sometimes layered) | State + local |
| Typical rate | 17–27% | 5–18% | 0–11% combined |
| Price display | Gross | Gross | Net |
Compare actual rates on our VAT rates by country page.