Updated on July 18, 2022
The Value-Added Tax (VAT) Calculator can determine a price before VAT, a VAT rate, or a price that is VAT inclusive.
Enter values for two out of the three available inputs to compute the third value.
What is VAT tax?
For example, the value added to goods or services during various supply chain phases, such as manufacture, wholesale, distribution, and delivery (or any other processes that add value to a product) is subject to VAT (value-added taxes).
VAT is a major source of money for governments around the world, accounting for about 20% of global tax revenue.
More than 160 countries impose this consumption tax, making it the most widespread in the world. Currently, all EU countries are legally compelled to implement a minimum VAT rate, and since its adoption in the early 20th century, European VAT rates have steadily risen across the continent. The United States is the only industrialized nation without a value-added tax (VAT).
Differences in VAT rates between countries
Even while all countries adhere to a fundamental VAT plan, the particular details of its execution varied greatly.
A country’s VAT is not the same as another country’s VAT. Import and export taxes, as well as laws for filing, paying, and penalizing tax evasion are all examples of country-to-country variations.
When it comes to products and services purchased for personal use, senior citizens in the Philippines are excused from paying VAT.
If you buy books or oils in China, you may be eligible for a lower VAT rate than the regular rate.
For a variety of goods and services, several countries do not impose a VAT. These include education, food, healthcare, and government taxes.
In nations like Australia and Canada, the VAT is known as a GST, or goods and services tax.
As a result, the phrases are frequently used interchangeably (sometimes even with the term “sales tax”), despite the fact that GST and VAT in their respective countries might vary greatly. Neither a VAT nor a GST exists in any country.
The following is a simplified example of how VAT works.
When a coffee shop owner sells his or her own roasted coffee beans to customers, he or she is subject to VAT, which is explained in the following paragraphs. Consider a 10% VAT rate. Each individual or company in the supply chain must submit VAT paperwork to the government.
First, the coffee beans are grown by a local farmer in the area.
The farmer obtains $5.50 from the roaster for each pound of fresh coffee beans if the roaster pays $5.00 for the beans and the VAT of $0.50 ($5.00 x 10%) is applied.
As part of the service, the roaster charges $10.00 per pound of freshly roasted coffee beans for their services.
To put it another way, the shop owner must pay $11.00 per pound for the roasted coffee beans, $10.00 for the coffee itself, and 10% VAT, which is $1.00 per pound. As a result, because the farmer has already paid $0.50 in taxes, the roaster owes the government only $0.50 in VAT.
Each pound of roasted coffee beans can be used to sell five cups of coffee at a price of $4.00 each, bringing in a total of $20.00 for the coffee shop owner.
The business owner obtains a total of $22.00 from consumers who purchase his coffee, $20.00, and $2.00 VAT for every five cups of coffee sold. The farmer and roaster have already paid the government $1.00 in VAT, thus the shop owner only has to give the government $1.00.
Taxes: VAT vs. Sales Tax
When a consumer buys a product or service, they pay a tax to the government.
At each stage of distribution, the sales tax is typically not collected. Vendors only collect sales tax from customers at the final stage of the purchasing process.
It’s clear from the above example that VAT works differently and is more complicated than sales tax.
When a customer pays the vendor for a product, the vendor collects sales tax.
In terms of avoiding tax fraud or malpractice, VAT is superior to sales tax because taxes are imposed continuously throughout the production and distribution process rather than just once. But VAT is more expensive to administer than sales tax because of the complicated paper trail it necessitates.
Despite the fact that VAT is levied numerous times on a single product or service, there is no double taxation.
A cascading impact is avoided since VAT is only levied on goods and services that have had value added to them (as shown in the example). With sales tax, however, double taxation is possible.
Both sales tax and VAT are calculated as a percentage of the purchase price. When it comes to VAT vs. sales tax, the typical rule is that retail sales tax rates fall somewhere between 4% and 10%.
It’s a common misconception that increasing VAT on businesses lowers taxes for consumers. In reality, businesses would simply raise their prices to make up for the lost revenue. Even though there are significant variances in the frequency and timing of taxes, the overall amount of tax money collected stays the same.
Because of VAT’s regressive character, lower-income earners are disproportionately affected by the tax. With effective application of progressive rules such as European VAT models, however, this can be countered.
The terms “sales tax” and “VAT” are frequently used synonymously. Please visit the Sales Tax Calculator for more information or to perform sales tax calculations.