Problems on Value Added Tax (VAT)

We will discuss here about some of the problems on value added tax (VAT).

1. Kylie buys an article for $ 10000 and pays 7% tax. He sells the same article for $ 13000 and charges 9% tax. Find the VAT paid by Kylie.

Solution:

Cost of the article = 10000

Tax paid by Kylie = 7% of $ 10,000

                          = $ 7/100 × 10000

                          = $ 700

Selling price of the article = $ 13000

Tax charged at 9% = 9% of 13000

                            = $ 9/100 × 13000

                            = $ 1170

Therefore, VAT = tax recovered on sale - Tax paid on purchase.

                       = $ 1170 - $ 700

                       = $ 470

Therefore, VAT = $ 470

2. A retailer buys an article from the wholesaler at $80 and the wholesaler charges a sales tax at the prescribed rate of 8%. The retailer fixes the price at $ 100 and charges sales tax at the same rate. Apply value added tax system of sales tax calculation to answer the following questions.

(i) What is the price that a consumer has to pay to buy the article?

(ii) Find the input tax and output tax for the retailer.

(iii) How much VAT does the retailer pay to the government?

Solution:

(i) Here, the price P = $100, the rate of sales tax r% = 8%

Therefore, cost price for the consumer = P(1 + r/100)

                                                         = $100 × (1 + 8/100)

                                                         = $100 × 108/100

                                                         = $108

(ii) Input tax = tax paid by the retailer to the wholesaler

                    = 8% of $80

                    = 8/100 × $80

                    = $64/10

                    = $6.40

Output tax = tax realised by the retailer from the consumer

                 = 8% of $100

                 = 8/100 × $100

                  = $8

(iii) Value added tax paid by the retailer = output tax – input tax

                                                          = $8 - $6.40

                                                          = $1.60

3. A shopkeeper sells an article at its marked price $ 7500 and charges sales-tax at the rate of 12% from the customer. If the shopkeeper pays a VAT of $ 180, calculate the price inclusive of tax paid by the shopkeeper.

Solution:

Since, the shopkeeper sells the article for $ 7500 and charges sales-tax at the rate of 12%.

Therefore, the tax charged by the shopkeeper = 12% of $ 7500

                                                                   = \(\frac{12}{100}\) × 7500

                                                                   = $ 900

Since, VAT = Tax charged – Tax paid

Or, $ 180 = $ 900 – Tax paid

Or, Tax paid by the shopkeeper = $ 900 - $ 180 = $ 720

If the shopkeeper buys the article for $ x

Tax on it = 12% of x = $ 720

Or, \(\frac{12}{100}\) × x = $ 720

Or, x = $ 6000

Therefore, the price inclusive of tax paid by the shopkeeper = $ 6000 + $ 720 = $ 6720

4. A manufacturer printed the price of his goods as $120 per article. He allowed a discount of 30% to the wholesaler who in his turn allowed a discount of 20% on the printed price to the retailer. If the prescribed rate of sales tax on the goods is 10% and the retailer sells it to the consumer at the printed price then find the value added tax paid by the wholesaler and the retailer.

Solution:

For the manufacturer, the price of the article at which it is sold = Printed price – discount of the wholesaler

= $ 120 – 30% of $ 120

= $ 120 - $ 120 × 30/100

= $ 120 - $ 36

= $ 84

Therefore, input tax for the wholesaler = 10% of 84 = 10/100 × $ 84 = $ 8.40

For the wholesaler, the price of the article at which it is sold = Printed price – discount to the retailer

= $ 120 - 20% of 120

= $ 120 - $ 120 × 20/100

= $ 120 - $ 24

= $ 96

Therefore, output tax for the wholesaler = 10% of 96 = 10/100 × $ 96 = $ 9.60

Therefore, VAT payable for the wholesaler = output tax – input tax

                                                              = $ 9.60 - $ 8.40

                                                              = $ 1.20

For the retailer, the price of the article at which it is sold = printed price = $ 120

Therefore, output tax for the retailer = 10% of 120

                                                      = 10/100 × $ 120

                                                      = $ 12.

Input tax for the retailer = output tax for the wholesaler

                                    = $ 9.60

Therefore, VAT payable by the retailer = output tax – input tax

                                                        = $ 12 - $ 9.60

                                                        = $ 2.40

Therefore, VAT paid by the wholesaler is $ 1.20 and that paid by retailer is $ 2.40

● Sales Tax and Value Added Tax

• Calculation of Sales Tax
• Sales Tax in a Bill
• Mark-ups and Discounts Involving Sales Tax
• Profit Loss Involving Tax
• Value Added Tax
• Problems on Value Added Tax (VAT)
• Worksheet on Printed Price, Rate of Sales Tax and Selling Price
• Worksheet on Profit/Loss Involving Sales Tax
• Worksheet on Sales Tax and Value-added Tax
• Worksheet on Mark-ups and Discounts Involving Sales Tax

10th Grade Math

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