What is Goods and Services Tax?
Written by True Tamplin, BSc, CEPF®
Updated on July 21, 2021
Goods and Services Tax Definition
A Goods and Services (GST) tax is a “value-added tax ” that is exacted upon certain domestically sold goods and services, and is typically set by the highest levels of government.
Customers paying a Goods and Services Tax will do so at the point of sale and will find it included within the total cost of the item itself.
Sort of like an alternative form of a sales tax.
Once collected, the tax is then forwarded onward by the seller to the governing body.
Does the U.S. collect a GST?
The United States does not collect a goods and services tax, at least not federally.
Certain states, such as the state of Washington, will include a sales tax on top of the total cost of all domestic items at the point of purchase but that money is then sent to the state capital of Olympia.
Countries today that do use a GST include Canada, Italy, Brazil, Spain and more.
Types of GST Systems
There are two types of a Goods and Services Tax Systems, unified and dual. Under a unified system, which is the more common form, federal and state/province taxes are combined into a single payment which means everything is taxed at the same rate.
Dual structures on the other hand, are a bit more complicated because the rate can change between different sectors of the country.
In countries that use dual structures, both federal and state/provinces may exact goods and services taxes.
Meaning, that under this system a domestically sold item can be taxed twice by two separate levels of government before the item can be purchased.