There are many different tax systems in place around the world. Some countries employ a value-added tax, or VAT. This tax is added to a product's price before it's for sale, so when a consumer sees the price tag, the tax has already been included. Sometimes consumers want to know the base cost of an item before the VAT, perhaps so that they can compare prices between markets that use the VAT and those that don't. Calculating a product's price before the VAT is quite simple. The basic equation is (100 / 100 + VAT) x final price = price before VAT.
Find out the VAT tax rate and the final price of the product. The tax rate should be standard for all items bought, and most countries make their VAT rate well known. As an example, say the VAT is 12 per cent and the final price of the item is £32.
Divide 100 by 100 plus VAT. You want to convert the VAT rate to decimal form so that it can be easily multiplied against the final cost of the item. The "100" represents 100 per cent of the base cost of the item. The "100 plus VAT" represents 100 per cent of the base cost of the item plus the tax rate. In our example, you would divide 100 by 112.
100 / 112 = .8928
Rounded up, the result is .893. This means that the base cost of the item was actually .893 or 89.3 per cent of the final price.
Multiply the percentage of the base cost by the final cost to get the answer. Going back to our example, you would multiply .893 by £32, the final price of the item.
.893 x 50 = 44.65.
Therefore, the price before the VAT was added was £29.0.
If Step 2 gave you an answer greater than one, then you have flipped the equation. The number greater than 100 should always be on the bottom.
Tips and warnings
- If Step 2 gave you an answer greater than one, then you have flipped the equation. The number greater than 100 should always be on the bottom.