How VAT and Sales Tax Are Calculated
Value Added Tax (VAT) and sales tax are consumption taxes added to the price of goods and services. VAT is used in most countries outside the US, while sales tax is the US equivalent. The key distinction is whether a displayed price is tax-inclusive (includes VAT) or tax-exclusive (VAT to be added). Extracting tax from a tax-inclusive price requires dividing rather than multiplying.
Google ad
Formula
VAT / Tax Calculator
Add or extract VAT / sales tax from any price with a chosen rate.
Google ad
Worked Example
Given:
Related Calculators
FAQs
How do I extract VAT from a tax-inclusive price?
Divide the total price by (1 + VAT rate). For a 20% VAT rate: if the price including VAT is $600, the pre-tax price is $600 ÷ 1.20 = $500. The VAT amount is $600 - $500 = $100. Do not simply multiply by 20% — that gives the wrong answer.
What is the difference between VAT and sales tax?
VAT is collected at each stage of production and is built into prices shown to consumers. Sales tax is applied only at the point of final sale and is typically shown separately at checkout. From the consumer's perspective the effect on the final price is similar, but the collection mechanism differs.
What VAT rates are common in different countries?
Standard VAT rates vary widely: UK 20%, EU countries typically 19–25%, Australia (GST) 10%, Canada (GST) 5%, India (GST) 5–28% depending on goods. The US does not use VAT but uses state sales tax ranging from 0% to about 10%.