GST / VAT calculation
Learn more about how we calculate GST (or VAT/Sales tax), as different approaches can be taken by different systems
Consider the tax rate is 15%
- An item that costs $12.00 incl, then costs $10.43 excluding tax and rounded (and unrounded 10.4347826)
- An item that costs $12.50 excluding tax, then costs $14.38 including tax and rounded, (or $14.375 unrounded)
If a customer purchases a quantity of these items,
then the insignificant digits, can eventually compound to cause variances in expected totals.
- eg If an item costs $12 including tax, then 10 items should cost $120 including GST. (not $119.95)
However, International customers do not pay GST. And domestic trade customers do pay GST, but are often quoted tax exclusive pricing.
If the customer is quoted a unit price of $10.43 excluding tax, and they buy 10 items, then the price is $10.43 * 10 = $104.30 excluding tax
How much should the GST be?
We use per unit basis for tax calculations
As we use per unit basis for tax calculations, then the GST is the difference between $12 and $10.43, which is $1.57
eg 10 items multiplied by $1.57 tax, is $15.70 tax (aka $120 including tax - $104.30 excluding tax)
If you use per-line basis
However, if you used per line basis, ($104.30 * 15%) then the tax would be $15.64. There is a difference of 6 cents tax.
If you calculated a GST inclusive price of $120 and worked backwards, you would get $15.65 tax.
Which answer is correct?
No answer is wrong, there are simply different ways of calculating it.
Irrespective of the method used, some pricing/quantities would produce more tax, and some pricing/quantities would produce less tax.
Some common sales tax approaches include
- per order basis = Tax is calculated on the order total
- per line basis = Tax is calculated per line total
- per unit basis = Tax is calculated first per unit, rounded, then multiplied by the quantity
Our system uses "per unit basis" as this produces the cleanest outcomes, even when large quantities are purchased.
Most of our merchants have retail customers. Retail customers like to see nice tidy round numbers for their purchases, including GST.
Rounding
Our typical rounding is halfup (0.5 rounded up), so $14.375 rounded becomes $14.38.
We provide additional rounding options, to get clean numbers in multiples of 10cents or rounded dollars for example, that might be desireable for retail situations. Our change in 2019 to using 3 decimal places for pricing typically removes the need for our rounding options.
Further understanding.
Our database stores all pricing GST exclusively in the database. This used to present challenges for having prices including GST with a clean number like $12, because the GST exclusive number needs to be rounded, thus producing a value of $12.01 or $11.99 depending on the rounding.
Our database now stores most prices to 3 decimal places. We calculate the GST on the exclusive price, to determine a clean inclusive price to 2 decimal places. We then round the exclusive price to 2 decimal places. The value of the GST is the difference between the 2 values.
When quantities are purchased, then we multiply these clean values by the required quantity being purchased.
All CSV imports and API's should provide pricing as GST exclusive values. It would be a good idea to provide pricing to 3 decimal places to ensure the desired outcomes for GST inclusive pricing.