Business & Finance

A Simple Guide to Calculating VAT & GST

Published on September 18, 2025

Value-Added Tax (VAT) and Goods and Services Tax (GST) are forms of consumption tax that are added to the price of most goods and services. Whether you're a business owner creating invoices or a consumer checking a receipt, knowing how to add or remove these taxes is a practical skill.

How to Add VAT/GST to a Price

This is the most common calculation, used when you have a pre-tax price and need to find the total cost.

The Formula:

First, calculate the tax amount, then add it to the original price.

1. Tax Amount = Net Price × (Tax Rate / 100)
2. Gross Price = Net Price + Tax Amount

For example, if a product costs $200 and the GST rate is 10%:
Tax Amount = $200 × 0.10 = $20.
Gross Price = $200 + $20 = $220.

How to Remove VAT/GST from a Price

This is useful when you have a total price that already includes tax, and you want to find the original, pre-tax amount.

The Formula:

You cannot simply subtract the tax percentage from the total price. Instead, you must divide the total price by (1 + the tax rate as a decimal).

Net Price = Gross Price / (1 + (Tax Rate / 100))

Using our example, if the total price is $220 and the tax rate was 10%:
Net Price = $220 / (1 + 0.10) = $220 / 1.1 = $200.

Conclusion

Understanding how sales taxes are calculated is essential for accurate budgeting for consumers and critical for correct pricing and bookkeeping for businesses. By using these simple formulas, you can easily navigate tax-inclusive and tax-exclusive pricing with confidence.