Difference Between Invoice and Tax Invoice

Key Difference – Invoice vs Tax Invoice
 

The key difference between invoice and tax invoice is that an invoice is a document issued by the seller to the buyer stating the details of the transaction conducted whereas a tax invoice is issued to a customer by a supplier who is registered for GST, listing out the relevant details of the transaction conducted. Whether an invoice is a general invoice or a tax invoice is demonstrated on each document; thus they can be easily distinguished. Understanding the differences between invoice and tax invoice is important to both supplier and the buyer.

CONTENTS

1. Overview and Key Difference
2. What is Invoice
3. What is Tax Invoice
4. Side by Side Comparison – Invoice vs Tax Invoice in Tabular Form
5. Summary

What is an Invoice?

An invoice is a document issued by the seller to the buyer, stating the details of the transaction conducted. An invoice is issued to a customer (generally the end customer) by an unregistered supplier i.e. a supplier who is not registered for GST (Goods & Services Tax). Since the supplier is not registered for GST, invoices issued will not consist of a tax component. Invoices should demonstrate that no GST was charged on the purchase by including the phrase ‘Price does not include GST’ or showing the GST component as zero.

GST is a form of indirect tax levied by the government on manufacture, sale, and consumption of goods and services at the national level. The main purpose of GST is to replace all other indirect taxes levied on goods and services by the government to make the tax system less complicated and easy to manage. GST tax rates vary by country.

E.g. United Kingdom – 17.5%, New Zealand 12.5%, China, 17%

The following components should be included in an invoice.

• Invoice number
• Date of issue
• Quantity
• Unit price
• Total amount (quantity* unit price)
• Discounts (if any)
• Details of the buyer
• Details of the seller

  Figure 01: Invoice

What is a Tax Invoice?

A tax invoice is issued to a customer by a supplier who is registered for GST, listing out the relevant details of the transaction conducted. A portion of the sales price (e.g. one tenth of the sales price) is collected from the customer as GST. The amount charged as GST should be indicated in the invoice separately. Only suppliers who are registered for GST can charge GST from customers. GST charged and collected in this manner is also referred to as output tax, which in turn should be paid to the Inland Revenue Authority.

Issuance of a tax invoice primarily prevails when goods are sold for the purpose of resale. Therefore, if the buyer is registered, GST can be claimed i.e. GST amount can be reduced when paying tax. This is referred to as input tax credit.

A business must be registered for GST if the turnover is $75,000 or more. Further, non-profit organizations should be registered for GST if their activities result in a surplus of $150,000.

The following components should be included in a tax invoice.

• Invoice number
• Date of issue
• Tax identification number (TIN)
• Quantity
• Unit price
• Total amount
• Details of the buyer
• Details of the seller
• GST charged

An exemption to GST can also be found even if the company is registered for GST. Such goods are known as exempt supplies and include the following.

• Donated goods sold by non-profit entities
• Residential accommodation under a head lease
• Financial services
• Penalty interest

What is the difference between Invoice and Tax Invoice?

Summary – Invoice vs Tax Invoice

The difference between invoice and tax invoice can be understood by looking at whether there is a GST component or not. Invoices issued by registered vendors are tax invoices while invoices issued by unregistered vendors are general invoices. Irrespective of application of GST, invoicing is an important activity that acts as a documented proof of transactions conducted. Businesses should have an effective invoicing system that allows tracking back if there is any discrepancy with the goods sold.

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Reference:

1. “Types of invoices.” Business.gov.au. Australian Government, 07 June 2017. Web. Available here. 15 June 2017.
2.”When do I have to pay GST?” Business.gov.au. Australian Government, 10 May 2016. Web. Available here. 15 June 2017.
3.”Gst Presentation.” LinkedIn SlideShare. N.p., 20 Nov. 2009. Web. Available here. 12 June 2017.
4. “Exempt supplies (GST on exempt, zero-rated, special supplies and receiving remote services).” Inland Revenue. N.p., n.d. Web. Available here. 12 June 2017.

Image Courtesy:

1. “Receipt” by trenttsd (CC BY 2.0) via Flickr
2. “My last Dick Smiths electronics store purchase ever…” by Chris Baird (CC BY 2.0) via Flickr