VAT Calculation

[RonSwanson]

how i can add vat 5% on purchasing ??
because In my country they calculate VAT like this (VAT On Purchasing )-(VAT On Sales)=VAT I have to pay for government ??..

So you pay VAT when you purchase goods, to the tune of 5%?
And you charge VAT of 5% when selling the same goods?

 

[rh1]

how i can add vat 5% on purchasing ??
because In my country they calculate VAT like this (VAT On Purchasing )-(VAT On Sales)=VAT I have to pay for government ??..

Most countries follow a similar approach

1. Vat on purchasing is known here as input Vat.
2. Vat on sales is output tax.

Example for illustration:
1. You buy 100 popsicles for $1 = $100 × 5% = $5 input VAT.

2. You sell for $2 a popsicle, 100 ×$2= $200×5%= $10 output VAT

3. $10-$5= $5 VAT that you must pay your taxman.

Our country requires you to charge VAT on sale of goods.

At month end you submit a reconcilation to the taxman saying what Vat you paid on purchases and what vat you charge customers. You then pay in the difference. Smaller businesses does the recon every 2nd month.

How it works in your specific country requires a local accountant to advise. I am not an accountant, so only explaining on a very high level my understanding of VAT.

 

[RonSwanson]

5%? You lucky fish!

It's quite easy.
The price you pay when buying, if it includes VAT, is 105%, right.

So you buy 30 bags of oranges, invoice price is R600 (including 5% VAT, and insert your own currency)

Easiest is to first determine what is 1%:

So our equation is R600 = 105/100 (remember percent come from Latin per cento, part of 100)

You want the RHS of the equation to be 1/100 (one percent);
To get the RHS of the equation to be 1/100, you have to divide both sides of the equation by 105;

so 600/105 = 5,714285714285714
and if we round it off, R5,71

So R5.71 = 1%

To get to 5%, we multiply 1% by 5
so R5.71 x 5 = R28,55

Getit so far? Good!

So when you bought the oranges, you paid R28.55 VAT, and the oranges actually cost R571.55

So VAT that you were charged on purchasing is R28,55

Then you sold those 30 bags of oranges for R1500, including VAT. Nice profit!

Same sum: determine what is 1%

R1500 = 105%

R1500 / 105 = 14,28571428571429 = 1%

we round it off to R14,29

To get 5%, we multiply 1% by 5

5X R14,29 = R71,45 = VAT on sales

Gettit? Good.


Now we can find the result of your formula:
(VAT On Purchasing )-(VAT On Sales)=VAT I have to pay for government

R28,55 - R71,45 = - R42,90

Yikes!
Clearly, if you are a going concern (i.e. making a profit) having a negative value on VAT means the Government owes you, not other way around, so I suspect that your formula is wrong, it does not make sense.

Are you sure that the formula is not (VAT On Sales) - (VAT On Purchasing )= VAT I have to pay for government? In that case, then you would owe government R42,90.

 

[RonSwanson]

Most countries follow a similar approach

1. Vat on purchasing is known here as input Vat.
2. Vat on sales is output tax.

Example for illustration:
1. You buy 100 popsicles for $1 = $100 × 5% = $5 input VAT.

2. You sell for $2 a popsicle, 100 ×$2= $200×5%= $10 output VAT

3. $10-$5= $5 VAT that you must pay your taxman.

Our country requires you to charge VAT on sale of goods.

At month end you submit a reconcilation to the taxman saying what Vat you paid on purchases and what vat you charge customers. You then pay in the difference. Smaller businesses does the recon every 2nd month.

How it works in your specific country requires a local accountant to advise. I am not an accountant, so only explaining on a very high level my understanding of VAT.

I am also not an accountant, but what you say makes sense to me.