VAT Calculator
Please provide any two values from the following inputs to calculate the remaining values.
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What is VAT?
VAT (value-added tax) is a type of indirect consumption tax imposed on the value added to goods or services, specifically during different stages of the supply chain, which may include production, wholesale, distribution, supply, or any other stages that add value to a product. VAT is commonly used by governments around the world as one of their main sources of revenue, and accounts for approximately 20 percent of worldwide tax revenue. It is the most common consumption tax in the world and is enforced in more than 160 countries. All countries that are part of the European Union (EU) are legally required to enforce a minimum VAT rate, and since its introduction in the 20th century, European VAT rates have consistently increased. The U.S. is the only developed country in the world that doesn't use VAT.
VAT Differences between Countries
While all countries follow a general VAT blueprint, there are a lot of differences in the finer details of their respective implementation. The VAT in one country will not be the same as the VAT in another. Differences between countries include the taxes imposed on specific goods or services, whether the taxes apply to imports or exports, and taxes regarding fine payment, payment, and penalties. For example, in the Philippines, senior citizens are exempt from paying VAT for most goods and some services that are for personal consumption. In China, besides the standard VAT rate, there is a reduced rate that applies to certain products such as books and oils. Many countries do not impose a VAT for certain goods ranging from education to foodstuffs, health services, and government charges.
GST
A GST, or goods and services tax, can be the alternative name of VAT in some countries such as Australia and Canada. In addition, the terms are commonly used interchangeably (sometimes even with "sales tax"), even though GST and VAT in their respective countries can differ tremendously. No country has both a GST and a VAT.
Simplified Example of the Process of VAT
Below is a simplified example of how VAT works throughout the supply chain. Suppose that a manufacturer purchases raw materials, adds value to them, and sells the finished product to a wholesaler for $100. The VAT applied is 20% ($20). The wholesaler then sells the product to the retailer for $150, and a 20% VAT is applied ($30). The retailer then sells the product to the final consumer for $200, and a 20% VAT is applied ($40). The key point is that the VAT collected at each stage is based on the value added at that stage.
Frequently Asked Questions
VAT (Value-Added Tax) is an indirect consumption tax imposed on goods and services at each stage of the supply chain. It represents the tax collected on the value added at each stage of production or distribution.
Key features:
- Used in over 160 countries worldwide
- Accounts for ~20% of worldwide tax revenue
- Mandatory in all EU countries
- Not used in the United States (uses sales tax instead)
- Applied at each stage of supply chain
VAT is calculated as a percentage of the net price (price before tax).
Example: Item costs $100 with 20% VAT:
Gross Price = 100 + 20 = $120
Net Price: The price of goods or services before VAT is applied. This is the base price upon which VAT is calculated.
Gross Price: The final price paid by the consumer, which includes the net price plus the VAT amount.
Example comparison:
VAT = $20
Final price customers pay = $120 (gross)
VAT rates vary significantly by country. Here are some typical rates:
- European Union: 17% minimum (highest ~27% in Hungary)
- United Kingdom: 20%
- Germany: 19%
- France: 20%
- Canada: 5% (called GST)
- Australia: 10% (called GST)
- Japan: 10%
- United States: No VAT (uses sales tax instead, typically 5-10%)
Many countries offer reduced VAT rates for specific products and services. Common reduced-rate items include:
- Food items: Basic groceries, bread, dairy products
- Books and newspapers: Educational materials and publications
- Medicines: Prescribed medications and vaccines
- Medical devices: Health-related equipment
- Children's clothing: Clothes for young children
- Transportation: Public transport in some regions
- Utilities: Gas and electricity in some countries
Typical reduced rates: 5-10% (lower than standard rate)
VAT is collected at each stage of the supply chain, with each business collecting tax on the value they add:
1. Manufacturer: Buys raw materials for $50, sells finished product to wholesaler for $100
- Profit (value added) = $50
- VAT collected = $20
2. Wholesaler: Buys from manufacturer for $100, sells to retailer for $150
- VAT on sale = $30
- But VAT already paid = $20
- Net VAT paid by wholesaler = $10
3. Retailer: Buys from wholesaler for $150, sells to consumer for $200
- VAT on sale = $40
- But VAT already paid = $30
- Net VAT paid by retailer = $10
Result: Total VAT collected = $40, but spread across the supply chain
GST (Goods and Services Tax) is the alternative name for VAT in some countries, particularly Australia and Canada. The terms are often used interchangeably, but there are differences:
- Terminology: GST is regional naming; VAT is more international
- Implementation: GST and VAT mechanisms can differ by country
- Countries using GST: Australia (10%), Canada (5%), India (5-28%)
- Countries using VAT: EU countries, UK, Japan (most of world)
- Note: No country has both GST and VAT simultaneously
For practical purposes, GST and VAT function similarly as consumption taxes on goods and services.
Yes, you can calculate the net price and VAT amount from a gross price. Simply:
Example: Gross price is $1,440 with 20% VAT:
Tax Amount = 1,440 - 1,200 = $240
This calculator automatically handles reverse calculations when you enter the gross price instead.