[Bigiron]

Here’s a step-by-step explanation of how GST works from raw materials to the final consumer, assuming the product passes through 5 vendors (including the manufacturer) with a 9% GST rate and raw material cost of $10:
 
 
 
1. Raw Material Purchase (Manufacturer)
 
- Cost of raw materials: $10 (GST-exclusive).
- GST paid by manufacturer: $10 × 9% = $0.90.
- Total cost to manufacturer: $10 + $0.90 = $10.90.
The manufacturer claims the $0.90 GST as an input tax credit (ITC).
 
 
 
2. Manufacturer → Vendor 1
 
- Value added by manufacturer: Assume the manufacturer converts raw materials into a product and sells it for $20 (GST-exclusive).
- GST charged by manufacturer: $20 × 9% = $1.80.
- Total price to Vendor 1: $20 + $1.80 = $21.80.
- Net GST paid by manufacturer:
$1.80 (GST collected) – $0.90 (ITC claimed) = $0.90 paid to the government.
 
 
 
3. Vendor 1 → Vendor 2
 
- Value added by Vendor 1: Sells the product for $30 (GST-exclusive).
- GST charged by Vendor 1: $30 × 9% = $2.70.
- Total price to Vendor 2: $30 + $2.70 = $32.70.
- Net GST paid by Vendor 1:
$2.70 (GST collected) – $1.80 (ITC claimed) = $0.90 paid to the government.
 
 
 
4. Vendor 2 → Vendor 3
 
- Value added by Vendor 2: Sells the product for $40 (GST-exclusive).
- GST charged: $40 × 9% = $3.60.
- Total price to Vendor 3: $40 + $3.60 = $43.60.
- Net GST paid: $3.60 – $2.70 = $0.90.
 
 
 
5. Vendor 3 → Vendor 4
 
- Value added by Vendor 3: Sells for $50 (GST-exclusive).
- GST charged: $50 × 9% = $4.50.
- Total price to Vendor 4: $50 + $4.50 = $54.50.
- Net GST paid: $4.50 – $3.60 = $0.90.
 
 
 
6. Vendor 4 → Vendor 5
 
- Value added by Vendor 4: Sells for $60 (GST-exclusive).
- GST charged: $60 × 9% = $5.40.
- Total price to Vendor 5: $60 + $5.40 = $65.40.
- Net GST paid: $5.40 – $4.50 = $0.90.
 
 
 
7. Vendor 5 → Consumer
 
- Value added by Vendor 5: Sells the final product for $70 (GST-exclusive).
- GST charged: $70 × 9% = $6.30.
- Total price to consumer: $70 + $6.30 = $76.30.
- Net GST paid by Vendor 5:
$6.30 (GST collected) – $5.40 (ITC claimed) = $0.90 paid to the government.
 
 
 
Summary of GST Flow
 
Stage GST Collected GST Paid to Government (After ITC) 
Manufacturer $1.80 $0.90 
Vendor 1 $2.70 $0.90 
Vendor 2 $3.60 $0.90 
Vendor 3 $4.50 $0.90 
Vendor 4 $5.40 $0.90 
Vendor 5 (Final Sale) $6.30 $0.90 
Total GST $24.30 $5.40 
 
- Final Consumer Pays: $76.30 (includes $6.30 GST).
- Total GST to Government: $6.30 (9% of the final price of $70).
This matches the cumulative GST paid at each stage ($0.90 × 6 stages = $5.40) + the GST on raw materials ($0.90).
 
 
 
Key Takeaways
 
1. Input Tax Credit (ITC): Businesses claim back GST paid on inputs, so they only pay tax on the value they add.
2. No Double Taxation: GST is a value-added tax; the final consumer bears the total tax.
3. Transparency: The tax burden is visible at each stage but ultimately falls on the end user.