BUSINESS SPEAK · VAT
VAT: Value-added tax (also GST or sales tax)
A tax added to the price of goods and services.
What it means
VAT, GST and sales tax add a percentage to a price. To add it: price × (1 + rate). To pull it out of a tax-included price: price ÷ (1 + rate) — not price × rate.
Where you’ll meet it
- Rates and rules differ by country and product; some prices are shown with tax included, others without.
- Businesses registered for VAT or GST can often reclaim the tax they pay on supplies.
Worked example
Scenario: A price of 120 includes 20% VAT.
- Price before tax: 120 ÷ 1.20 = 100
- Tax inside it: 120 − 100 = 20
- Not 120 × 20% = 24
Answer: The tax is 20, and the price before tax is 100.