Understanding Goods and Services Tax (GST) Calculations
Goods and Services Tax (GST)—also recognized as Value Added Tax (VAT) in numerous economies—is a comprehensive, multi-stage consumption tax levied on the sale of goods and services. Depending on whether you are issuing a commercial B2B invoice or purchasing retail merchandise, tax is computed either on an exclusive or inclusive basis.
1. GST Exclusive (Tax Added)
Applied when pricing is quoted net of tax and GST is added on top.
Gross = Net Amount + GST
2. GST Inclusive (Tax Extracted)
Applied when retail pricing already includes tax and you need the pre-tax base.
GST = Gross - Net
Worked Examples: Exclusive vs. Inclusive Tax
Example A (Exclusive): A freelancer bills $1,000 for web consulting at an 18% GST rate. Tax is added on top: $1,000 × 18% = $180 GST. The client is invoiced for a gross total of $1,180.
Example B (Inclusive): A consumer buys an electronic gadget at a store for $1,180 with 18% GST included in the sticker price. The store's pre-tax revenue is: $1,180 / 1.18 = $1,000 net, with $180 remitted to the government in sales tax.