How
to deduct tax from a price which
includes tax.
The world
is taxed. We have to pay tax on most of the things that we buy.
People can often add tax to a figure,
but when it comes to taking it off they go a bit quiet, interrogating
teachers, kids and old folks until they find an answer. So here
it is...
Taking-off
Tax from a price
This is
the calculation you need to use when:
you know a price after tax (the
Gross price)
but want to find out the price before
tax (the Net price).
|
If
we assume that sales tax is at a rate of 20%...
|
|
Gross
price
|
divided
by
|
1.20
|
=
Net price
|
|
Price
after tax
|
divided
by
|
1.20
|
=
Price before tax
|
|
eg.
180.00
|
divided
by
|
1.20
|
=
150.00 |
|
In the equation
above, 1.20 is the divisor.
To get the divisor, we need to convert the tax rate into a fraction
by dividing it by 100 and then add the resulting fraction to 1.
So, if we assume that tax is at a rate of 20%,
we will need to divide 20 by 100, giving 0.20, then add 1.
Thus the divisor is 0.20 +1 = 1.20
|
So
now let's assume that a tax is at a new rate of 2.5%...
First, get the divisor :
2.5 / 100 = 0.025
0.025 + 1 = 1.025
The divisor is 1.025
So...
|
|
Gross
price
|
divided
by
|
1.025
|
=
Net price
|
|
Price
after tax
|
divided
by
|
1.025
|
=
Price before tax
|
|
eg
:
|
|
|
|
|
102.50
|
divided
by
|
1.025
|
=
100
|
|
102.50
inc Tax
|
|
|
=
100 + Tax
|
|
For
more information on taxes and Value Added Tax
( vat )
How
much do you markup a price to allow for a % discount?
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