Introduction

Tax is a charge imposed on the goods or activities of a country. We, as consumers, pay taxes for many reasons. These include: insurance, defense, social security and other long-term investments; roads and airports; law enforcement to prevent crime; regulation to ensure safety and quality of goods or services.

For selling gods and services, Sales Tax and Trade Tax must be provided to the government.

A value added tax (VAT) is a type of sales tax that is charged on most retail goods sold in countries with such taxes, with two exceptions: those exported outside the member states taxing jurisdiction and some kinds of items used in industry (e.g., fuel).

Some important Definitions

1.     Cost Price: It is the price at which trader buys goods. It is also known as basic price.

2.     Selling Price: It is the price at which the good is sold without any tax.

3.     Profit and Loss:   Profit = SP – CP          Loss = CP – SP

Profit % = Profit/CP * 100 Loss % = Loss/CP * 100

4.     List Price: It the price marked on the product.

5.     Discount: When certain amount of list price is deducted as a percentage them it is referred to as discount. Discount is given on the list price.

Calculations of Sales Tax

For each state sales tax may vary for each good that is being sold in the market. Calculation of sale tax involves formulae of percentage.

·       Sales tax is always calculated on the sale price

·       Sales Tax = (Rate of Sales * Sales Price) / 100

·       Rate of Sales Tax = Sales Tax / Sales Price * 100%

·       Amount paid by customer = Sales Price + Taxed Amount

Question: What are overhead charges and how overhead charges and discounts affect the selling price of an article?

Answer: Overhead charges are extra charges that are paid before buying any product, like transportation charges. To know how to calculate selling price of a commodity involving overhead charges and discount, visithttps://youtube.com/channel/UCoqI7C9rI2UbFPITF2bPgnQ.

Value Added Tax

Value added tax, or VAT, is a new way to collect taxes from the sale or purchase of commodities. The tax used to be realized at a single point alone in the earlier form of sales tax. The government required sales tax to be paid by the manufacturer, distributor, or retailer. However, in the VAT system, the government collects the tax at every stage, from the manufacturer to the retailer.

·       The state governments also collect VAT, unlike sales tax.

·       It is not a replacement for the current sales tax; rather, it is an addition to it. Currently, the VAT system is accepted by the majority of state governments.

·       It is a tax on the value added at each point in the chain between the manufacturer and the merchant of the goods.

·       The VAT is deposited with the government along with the difference between the tax recovered on the sale value and the tax paid on the purchase value.

 A representation of VAT for the rate of tax to be 10% and Cost price is Rs. 600.

·       Total VAT charged and paid at different stages is the tax on the price paid by the customer.

The above-mentioned table can help you to understand how value added tax is different from VAT is from Sales Tax. To understand with the help of examples and if you have any other doubts related to VAT and Sales tax visit https://youtube.com/channel/UCoqI7C9rI2UbFPITF2bPgnQ.