Lecture on Value Added Tax (VAT) and Calculations

Introduction to VAT

• VAT stands for Value Added Tax.
• Commonly applied in sales transactions to the price of goods.
• In South Africa, VAT is currently 15% (used to be 14%).
• Important to verify the VAT rate as examples may vary between old and new rates.

Example of VAT Application

• A t-shirt priced at 100 Rand (excluding VAT).
• Add 15% VAT: 100 Rand + 15% = 115 Rand.
• The amount of VAT (15 Rand) must be paid to the government (SARS).
• The seller keeps the original price (100 Rand).
• Prices in shops are typically inclusive of VAT.

Calculation Formula for VAT

• To Add VAT: Multiply the price without VAT by 1.15 (for 15%).
  • Formula: Price without VAT * 1.15 = Price with VAT.
  • Alternative formula: Price without VAT * (115/100) = Price with VAT.
• To Remove VAT: Divide the price with VAT by 1.15.
  • Formula: Price with VAT / 1.15 = Price without VAT.

Examples and Practice Calculations

Example 1: Add VAT

• Problem: Soccer ball costs 120 Rand (excluding VAT).
• Solution:
  • Price with VAT: 120 * 1.15 = 138 Rand.
  • VAT added: 138 - 120 = 18 Rand.

Example 2: Remove VAT

• Problem: Martin paid 199 Rand for pants (VAT included).
• Solution:
  • Price without VAT: 199 / 1.15 = 173.04 Rand.
  • VAT amount: 199 - 173.04 = 25.96 Rand.

Example 3: Another Add VAT Calculation

• Problem: Item costs 1,000 Rand (excluding VAT).
• Solution:
  • Price with VAT: 1,000 * 1.15 = 1,150 Rand.
  • VAT added: 1,150 - 1,000 = 150 Rand.

Example 4: Invoice for New Mattress

• Problem: Mattress listed as 2,150 Rand (without VAT).
• Solution:
  • Price with VAT: 2,150 * 1.15 = 2,472.50 Rand.
  • VAT added: 2,472.50 - 2,150 = 322.50 Rand.

Conclusion

• Understanding VAT and its application is crucial for accurate pricing and compliance.
• Practice calculations help solidify the method of applying and removing VAT from prices.