Hello Students!!! Are you confused about the difference between the sales tax and value added tax? If yes, then don’t get tensed we will help you to learn deeply about the value-added tax and also about types of value added tax. The government collects funds in order to provide basic needs for the people in the country. It is different for different countries. Let’s discuss in-depth value-added tax with questions and answers.
Do Refer:
Value Added Tax – Definition
The Value Added Tax is a type of sales tax that is paid at each stage in the manufacture of goods and services by the customer.
Value Added Tax Formula
To calculate the Value Added Tax we have to know the formula that must be paid at each stage. The formula is very simple just subtract the input tax from the output tax.
VAT = Output Tax – Input Tax
Types of Value Added Tax
Value Added Tax Problems and Solutions
Example 1.
A shopkeeper buys an article whose printed price is Rs 6000 from a wholesaler at a discount of 30%. The rate of sales tax (under VAT) on the article is 4%. If he sells the article to a consumer at the printed price plus tax, find
(i) the price of the article inclusive of sales tax at which the shopkeeper bought it.
(ii) the amount of sales tax (under VAT) paid by the shopkeeper.
(iii) the amount of tax (under VAT) received by the Government.
(iv) the amount which the customer pays for the article.
Solution:
(i) Printed price = Rs 6000, rate of discount = 30%.
Amount of discount = (6000 × 30/100) = 1800.
Therefore, The price of the article which the shopkeeper paid to the wholesaler
= Rs 6000 – 1800 = 4200.
Sales tax paid by the shopkeeper to the wholesaler
= 4% of Rs 4200 = (8/100 × 4200)
= 336
Therefore, the Price of the article inclusive of sales tax at which the shopkeeper bought it = Rs 4200 + Rs 336 = Rs 4536
(ii) Since the shopkeeper sells the article at the printed price of Rs 6000, the value added by the shopkeeper
= Rs 6000 – Rs 4200 = Rs 1800.
Therefore The amount of sales tax (under VAT) paid by the shopkeeper
= 8% of Rs 1800 = (1800 × 8/100)
= Rs 144
(iii) The amount of sales tax (under VAT) received by the Government
= Rs 336 + Rs 144 = Rs 480
(iv) The value of the article paid by the consumer = Rs 6000
Sales tax paid by the consumer = 4% of Rs 6000 = (6000 × 4/100)
= Rs 240
Therefore, The amount which the customer pays for the article
= Rs 6000 + Rs 240 = Rs 6240
Example 2.
A person buys an article at a discount of 14% from the wholesaler, the marked price being Rs 2000. The person sells it to a shopkeeper at a discount of 7% on the marked price. If the rate of VAT is 3%, find:
(i) the price paid by the shopkeeper including the tax.
(ii) the VAT paid by the person
Solution:
The marked price of the article = Rs 2000.
The rate of VAT = 3%.
(i) As the person sells the article to a shopkeeper at a discount of 7% on the marked price,
The selling price of the article by the person excluding tax = Rs 7
= (1- 7/100) × 2000 = (93/100) × 2000
=Rs 1860
Therefore, the Cost price of the article to the shopkeeper = Rs 1860
Sales tax paid by the shopkeeper = 3% of Rs 1860
= 1860 × 3/100
= 55.8
Therefore, The price paid by the shopkeeper including the tax
= Rs 1860 + Rs 55.8 = Rs 241.8
(ii) As the person buys the article at a discount of 14% on the marked price,
Therefore, the cost price of the article to the person = Rs 14
= (1- 14/100) × 2000
= (86/100) × 2000
=Rs 1720
The selling price of the article by the person = 1860
Therefore, The profit of the person = S.P. – C.P.
= Rs 1860 – Rs 1720 = Rs 140.
Thus, the person has added Rs 140 to the sale of the article.
Therefore, VAT paid by the person = 3% of Rs 140
= Rs (3/100 × 140)
= Rs 4.2
Example 3.
The list price of an article is Rs 7000. A shopkeeper sells the article to a consumer at the list price and charges sales tax at the prescribed rate of 9%. If the shopkeeper pays a VAT of Rs 62 to the State Government, at what price inclusive of sales tax did the shopkeeper buy the article from the wholesaler?
Solution:
Let the profit of the shopkeeper be Rs x, Then the value of the article added by the shopkeeper = Rs x.
As the VAT paid by the shopkeeper is Rs 62 and the rate of sales tax = 9%,
Therefore 9% of Rs x = Rs 62
9/100 × x = 62
x = 75
Therefore, The profit of the shopkeeper = Rs 75.
Therefore, The price of the article which the shopkeeper paid to the wholesaler
= Rs 7000 – Rs 75= Rs 6025.
Sales tax paid by the shopkeeper to the wholesaler on the article = 9% of Rs 6025 = Rs 9/100 × 6025
= Rs 542.25
Therefore, The price of the article inclusive of sales tax which the shopkeeper paid to the wholesaler
= Rs 6025 + Rs 542.25 = Rs 6567.25
Example 4.
Kajol buys a book for $ 6000 and pays 2% tax. He sells the same book for $ 12000 and charges 7% tax. Find the VAT paid by Kajol.
Solution:
Given that
Cost of the book buy by a kajol = 6000
Tax paid by Kajol = 2% of $ 6000
= $ 2/100 × 6000
= $ 120
Selling price of the book = $ 12000
Tax charged at 7% = 7% of 12000
= $ 7/100 × 12000
= $ 840
Therefore, VAT = tax recovered on sale – Tax paid on purchase of book
= $ 840 – $ 120
= $ 720
Therefore, VAT = $ 720
Example 5.
A shopkeeper sells a pen at its marked price of $ 7200 and charges sales tax at the rate of 22% from the customer. If the shopkeeper pays a VAT of $ 280, calculate the price inclusive of tax paid by the shopkeeper.
Solution:
The shopkeeper sells the pen = $ 7200 Charges sales-tax at the rate = 22%.
Therefore, the tax charged by the shopkeeper = 22% of $ 7200
= 22/100 × 7200
= $ 1584
Since, VAT = Tax charged – Tax paid
$ 280 = $ 1584 – Tax paid
Tax paid by the shopkeeper = $ 1584 – $ 280 = $ 1304
If the shopkeeper buys the pen for $ x
Tax on it = 22% of x = $ 1304
22/100 × x = $ 1304
x = $ 5927.27
Therefore, the price inclusive of tax paid by the shopkeeper = $ 5927.27 + $ 1584 = $ 7511.27
FAQs on Value Added Tax (VAT)
1. What is the formula of VAT in maths?
VAT (Value Added Tax) = Output Tax – Input Tax
2. How do you add value-added tax?
To calculate the amount of value-added tax that must be paid at each stage, take the VAT amount at the latest stage of production and subtract the VAT that’s already been paid.
3. What is Value Added Tax meaning?
Value-Added Tax is a form of sales tax. It is a tax on consumption levied on the sale, barter, exchange or lease of goods or properties and services.