Wealthy Maths: How to calculate VAT

Updated on May 30, 2022

The price of a product or service is increased by the addition of a tax known as value added tax (VAT). As a result, learning how to compute a percentage is a necessary first step.

I prefer to think of percentages in terms of “%” and “percentage.” As a result, “per hundred” is what “per cent” signifies because “cent” is short for “century” (imagine 100 years or a century in cricket).

In South Africa, the current VAT rate is 15%, which means you pay R15 in VAT for every R100 in costs. Just add the R15 VAT to the R100 pricing, and we’ll have R115, which is the entire amount with VAT.

Remember that VAT is imposed as a percentage “of” the purchase price in order to figure out how much you owe. The word “of” simply means to multiply in mathematics.

We need to multiply R25 by 15% in order to calculate the VAT on a product that costs R25. As a result, we may simply multiply R25 by R15 to get 15%. “””””””””

 

When we add the VAT of R3.75 to R25, we get R28.75, which is the entire cost including VAT. That’s all there is to it.

Let’s have a look at a shortcut now that you’re familiar with the math involved in calculating VAT. If you want to know the overall cost of a price, multiply it by 1.15. Why is 1.15 so important? For a total of $1.00, add 15/100 = $0.15.

R25 x 1.15 = R28.75 if VAT is included in the total cost, as in the preceding case.

Knowing how to determine an item’s post-VAT cost is helpful since you won’t be left wondering what the final price is. It also implies that you will be able to compare two products side by side. Some investment costs, for instance, do not include VAT. Now that you know that the total cost of option 1 is 1.15 percent, you will realise that it is the more expensive option when provided with two similar investment options, with option 1 charging one percent excluding VAT and option 2 charging one percent including VAT.

In this scenario, 1.00 is equal to 100% of the price, don’t you think?

 

Wealthy Maths blogOur friend Stealthy Wealth knows his way around maths. Luckily for us he also speaks human, which is why we asked him to explain the most important maths we need to know to be good at money. This is not your average maths class. Become a money mathemagician with our Wealthy Maths blog.


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