This value-added tax a.k.a. VAT calculator is a tool you can use to compute the amount of VAT you need to pay and the gross price of the product based on its net value. Besides, you may employ our calculator to add VAT or remove VAT to/from the net/gross amount. Before you use this online VAT calculator, you may want to take a moment to read more about the topic: what is VAT, what is its history, how to work out VAT manually, and what are its economic implications together with some interesting facts.
Value added tax (VAT), is a consumption tax; it is applied to goods and services, which is why it is known as goods and services tax (GST) known in some countries (Australia, Canada, New Zealand, and Singapore). The name refers to the fact that it is a tax on the “added value”, that is the sale price of a product after deducting the cost of materials and other taxable inputs (see below for an example). Another form of consumption tax is the sales tax.
What is the difference between VAT/GST and sales tax?
VAT/GST applies to every stage of production of goods and services (therefore called a multi-stage tax) and is calculated based on the “added value” only. It means that each participant in the production chain pays VAT only for the “added value” they create. This process goes on until the product reaches its final recipient – the customer. He/she does not produce any “added value”, therefore it is he/she who is the ultimate bearer of the tax burden.
In contrast, the retail sales tax is a single-stage tax charged on the total value of sold goods or services when the sale takes place. Therefore it is paid only once in contrast to VAT, which is calculated multiple times.
Through a simple example, the below table illustrates the comparison between VAT and sales tax. Imagine a lumberjack cutting trees (without cost) who sells the wood (enough for one barrel) to a sawmill owner for $100. The sawmill owner cuts the wood into oak staves and sells it to the cooper for $150. The cooper then makes a barrel that he can sell for $300 to the retailer who eventually sells it to the customer for $350. The total VAT paid is $35 or 10% of the sum of values added at each stage. In the case of sales tax with the same 10% rate the paid tax is identical, however, it’s assessed only at the point of sale to the customer.