💚 Value Added Tax (VAT)

What is Value Added Tax?

VAT is an indirect tax levied on goods and services at each stage from production to consumer. At each stage, tax is charged only on the added value — not on the full price again.

🇳🇵 Current VAT rate in Nepal: 13%

📖 Definition

A Value Added Tax (VAT) is a tax levied on the price that increases at each level by deducting a discount when selling goods or services. This tax should be paid by the consumer at the end but it does not allow the price of the commodity to increase unnecessarily.

From the Mathematical Technical Dictionary — VAT is collected at every stage of the supply chain, but each seller only pays tax on the value they added.

🔗 VAT Supply Chain

🏭
Manufacturer adds VAT on production cost
↓
🚚
Dealer sells to wholesaler with VAT
↓
📦
Wholesaler sells to retailer with VAT
↓
🏪
Retailer sells to consumer with VAT
↓
👤
Consumer pays the final VAT amount
💡 Key Facts
13%
Current VAT Rate in Nepal
🔄
Collected at Each Stage
👤
Paid by Consumer Finally
🏦
Goes to Government Treasury
🔗 VAT Chain

📺 TV Example — How VAT Flows from Manufacturer to Consumer

A company manufactures a TV at Rs. 10,000. See how VAT accumulates at each stage of the supply chain until it reaches you.

🏭
Manufacturer
Sells to Dealer
Cost PriceRs. 10,000
✚ VAT (13%)Rs. 1,300
Selling PriceRs. 11,300
🚚
Dealer
Sells to Wholesaler
Buys atRs. 11,300
Expenses + ProfitRs. 1,200
Price (no VAT)Rs. 12,500
✚ VAT (13%)Rs. 1,625
Selling PriceRs. 14,125
📦
Wholesaler
Sells to Retailer
Buys atRs. 14,125
Expenses + ProfitRs. 875
Price (no VAT)Rs. 15,000
✚ VAT (13%)Rs. 1,950
Selling PriceRs. 16,950
🏪
Retailer
Sells to Consumer
Buys atRs. 16,950
Expenses + ProfitRs. 1,050
Price (no VAT)Rs. 18,000
✚ VAT (13%)Rs. 2,340
Final PriceRs. 20,340
🏦 How VAT Reaches the Government
Manufacturer pays
1,300 − 0
Rs. 1,300
Dealer pays
1,625 − 1,300
Rs. 325
Wholesaler pays
1,950 − 1,625
Rs. 325
Retailer pays
2,340 − 1,950
Rs. 390
Total VAT to Govt
1300+325+325+390
Rs. 2,340 ✓
💡 Key Insight: The consumer ultimately pays all Rs. 2,340 VAT. Each seller in the chain only remits the difference between their output VAT (collected) and input VAT (already paid) — so no one is taxed twice!
📐 VAT Formulas
1
Calculate VAT Amount
VAT Amount = Selling Price (without VAT) × VAT Rate ÷ 100
💡 First find the price without VAT, then multiply by 13% (or given rate) ÷ 100.
2
Find Selling Price with VAT
Selling Price (with VAT) = SP (without VAT) + VAT Amount
OR: Selling Price (with VAT) = SP × (1 + Rate/100)
📌 Adding the VAT amount to the base price gives the final price the buyer pays.
3
Find Price Without VAT (from price with VAT)
SP (without VAT) = SP (with VAT) × 100 ÷ (100 + Rate)
💡 When the VAT-inclusive price is given and you need the base price.
4
Price After Discount Then VAT
Price after Discount = MP × (1 − Discount%/100)
Final Price = Price after Discount × (1 + VAT%/100)
📌 Discount is applied first, then VAT is calculated on the discounted price.
VAT Inclusive Price
VAT Amount = SP(with VAT) − SP(without VAT)
Or: = SP(with VAT) × Rate ÷ (100+Rate)
With Discount
Discount = MP × Discount% ÷ 100
SP after discount = MP − Discount
VAT = SP × Rate ÷ 100
Marked Price from SP
MP = SP (with VAT) × 100 ÷ [(100−Dis)×(100+VAT)/100]
Key Terms
MP = Marked Price
SP = Selling Price
VAT = Value Added Tax
Dis = Discount %
📋 Worked Examples
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