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...
Takingoff
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?
