Read and try to understand Textbook 1B explanation and worked examples: pg 26 to 28.
Goods - Products that you will buy.
Service - Service provided (Eg: at restaurants)
Tax - Amount that government collect to fund government expenditures.
In Singapore, GST is at 7% and service charge is usually at 10%.
Example:
At a restaurant the cost of the meal is $80. There is a 10% service charge and GST of 7%. Find the total cost payable for the meal.
Working 1 (Correct Working)
Cost of meal with 10% service charge: 110% x $80 = $88
Total cost of meal with 7% GST : 107% x %88 = $94.16
Working 2 (Incorrect working: Students add up the service charge and GST together to find the total amount.)
Service charge and GST: 17%
Total cost of the meal with service charge and GST: 117% x $80 = $93.60
NOTE:
Working 1 and Working 2 have different answers. Working 2 is wrong, we should not add the service charge together with the GST to calculate the total cost payable.
GST is a tax on the service as well, so it must be calculated separately. To calculate GST, we must always find the amount with the service charge added into the original cost before finding 7% GST of the cost inclusive of the service charge.