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Understanding VAT & VAT Calculations

What is VAT?

VAT (Value Added Tax) is a consumption tax that is placed on the products whenever the value is added at each stage of the supply chain, from production to sale.

The traditional sales taxes like the federal excise taxes on certain products, such as alcohol and cigarettes, that are collected by the local and state governments are collected only once i.e. at the time of sale. Such taxes are paid only by the retailer. These types of taxes are collected by taking a percentage of the final purchase price.

However, unlike the traditional taxes, VAT is collected at all the stages of the process of production and distribution. Let us take an example to understand this. In case of a metal tool, VAT has to be paid by the mine that produced the ore the metal is made from when it sells the ore to the smelter. When the smelter will sell the ore to the toolmaker, he would have to pay the tax. After that, the tool factory has to pay the tax when it sells the tool to the distributor. The distributor will further pay the tax on selling it to the retailer, and the retailer will finally pay a tax when the tool will be sold to the consumer.

Since the levy is collected multiple times, the chain becomes pretty long, however, it is very advantageous. The VAT is a consumption tax which means that the tax is paid only when any product is actually sold. Therefore, your business has to pay only when it actually transacts business.

The calculation of VAT requires enormous brain work and energy. It is difficult to calculate it manually, but what if there is an easier way to make the calculations?

Make VAT Calculations Easier with the Calconic VAT Calculator

The vat calculator widget by Calconic is an amazing online tool used to estimate the amount of VAT that you need to pay and the gross price of the goods or services based on their net price.

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What is Gross Price, Net Price?

The total price that you pay for a product at the cash register is called Gross price. It consists of the product’s net value or net price + VAT.

Net price is the value of services/goods when VAT and other taxes are not added.

How Does the VAT Calculator Work?

It works automatically by applying calculation formulas, based on the task. The main two tasks of the VAT calculator are:

  • To estimate the amount of VAT that you will have to pay or reclaim.
  • To estimate the Gross Price when VAT is applicable.

Formulas Used

  • For Adding VAT

Getting Gross Price: Price*(1+VAT/100)

Inclusive VAT: Price*VAT/100

  • For Removing VAT

Getting Net Price: Price/ (1+VAT/100)

Exclusive VAT: Price/ (1+VAT/100)*(VAT/100)

Since VAT is applicable to a majority of goods and services that are bought and sold for use, VAT calculator becomes an essential tool to help you calculate VAT, either remove it or add it.

About the author

Pushkar Kathayat

Pushkar Kathayat is the Chief Editor of TechGeekers. His passion is towards SEO, Online Marketing and blogging.