VAT Calculator

What Is VAT?

Value Added Tax (VAT) is one of the most common methods of taxation in the world. VAT is charged on goods and services at every stage of production and distribution where the value is added. Although VAT is charged by businesses, the final cost is incurred by the consumer.

VAT is an indirect consumption tax that is levied every time the value of a product or service is added. Every business in the supply chain is able to charge VAT on its sales and also recover the VAT it has paid on its purchases.

Important aspects of VAT

• Applied at multiple stages of production
• Paid by the end consumer
• Businesses function as tax collectors
• Assists in combating tax evasion
• Use and Purpose of VAT

VAT is a significant factor in the economies of nations. Governments use VAT as a source of revenue.

The major uses of VAT revenue are

• Financing public services such as healthcare and education
• Infrastructure development support
• Less dependence on income tax
• Promoting transparency in business transactions

Since VAT is distributed over a wide number of transactions, it is regarded as more reliable than single point taxes.

VAT and GST Rates by Country

The rates of VAT(Value Added Tax) and GST(Goods and Services Tax) differ according to the taxation policies of each country. The following is a general summary of the major regions.

United Kingdom (UK)
Standard VAT rate: 20%
Standard rate: 20% (most goods and services)

Reduced rate:
Zero rate: 0% (basic food, books, children’s clothing)

The UK has a well organized VAT system, and businesses above a certain threshold are required to register.

United States (USA)
No VAT system
Uses sales tax instead
The state uses

The rates of sales tax differ from state to state and from local government to local government.Sales tax is imposed only at the end point of sale, unlike VAT.

Canada
Canada has Goods and Services Tax (GST) rather than VAT.
Federal GST rate: 5%
Some provinces use GST and provincial taxes into HST (Harmonized Sales Tax), which varies from 13% to 15%

The system is similar to VAT, where businesses can claim input tax credits.

Australia
The GST system in Australia is similar to VAT.
GST rate: 10%
Some of the essentials such as basic food, healthcare, and education are GST-free.
The GST is administered across the country and is quite simple compared to other VAT regimes.

European Union (EU)
However, all member states of the EU apply VAT.
Standard rate of VAT: 15%
Common rates:
Germany: 19
France: 20
Italy: 22
Spain: 21

A large number of EU member states also use lower VAT rates for essential goods and services.

VAT vs GST

VAT and GST are  the same thing. The only difference is the name and the system of administration.

VAT is widely practiced in Europe and the UK
GST is practiced in countries such as Canada and Australia

Both tax value added at each stage of production and the amount of tax
Both enable businesses to claim input tax credits

Example of How VAT Works

A producer purchases raw materials for $100 + $10 VAT.
The supplier sells the product at $200 + $20 VAT.
The retailer sells it to a customer for 300 + 30 VAT.

The producer and the retailer claim the VAT on purchases. The government ultimately collects the VAT paid by the final consumer.

vAT vs Sale Tax