Goods leaving a country are typically relieved of its consumption tax, and goods arriving are charged the local one. The arrangement follows from a principle about where consumption occurs.
The destination principle
Consumption taxes are designed to tax final use rather than production. A good consumed in one country should bear that country's tax regardless of where it was made.
Exports are therefore zero-rated, with the exporter recovering tax paid on inputs. The good leaves free of the origin country's tax.
Imports are taxed on arrival at the destination country's rate. Domestic and imported goods then face identical tax, which is the neutrality the system aims for.
Why this is not an export subsidy
Relieving exports of consumption tax is sometimes described as favouring exporters. It is not, because the good will be taxed in the country where it is consumed.
Charging both would tax the same consumption twice and place exports at a disadvantage. Zero-rating avoids that rather than conferring an advantage.
The equivalent principle applies to imports, which would otherwise escape tax entirely. Border collection closes that gap.
How the mechanism works through a chain
Businesses charge the tax on sales and reclaim it on purchases, remitting only the difference. Tax accumulates on the value added at each stage.
Because registered businesses recover what they pay, the burden falls on the final consumer. The intermediate steps are collection points rather than taxpayers.
An importer pays the tax at the border and recovers it in the same way. For a registered business the border charge is a cash flow cost rather than a final one.
Why deferral schemes exist
Paying at the border and reclaiming later ties up working capital, sometimes for months. Many jurisdictions permit accounting for import tax on the periodic return instead.
Under such schemes the charge and the recovery appear on the same return and offset each other. No cash moves for a fully recoverable business.
Eligibility conditions and the availability of these schemes differ by jurisdiction and change over time. Some require guarantees or a compliance history.
Where services and digital supplies complicate matters
Services have no border to cross, so rules determine the place of supply by reference to the customer's location or the nature of the service. Those rules differ between jurisdictions.
Sales of digital services to consumers abroad have led many countries to require foreign suppliers to register locally. Registration thresholds and procedures vary considerably.
Low-value goods ordered online have been brought into the tax net in several jurisdictions through similar registration requirements. This area continues to change quickly.