💚 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.

📘 Before you read the chain — 3 words you must know Every seller in the chain does two things: they buy something (and pay VAT on it) and then they sell it again (and charge VAT on it). The seller never keeps the VAT they collect — they simply pass the difference to the government.
🔹 Input VAT — VAT the seller already paid when buying goods.
🔹 Output VAT — VAT the seller charges the next buyer while selling.
🔹 Net VAT to Govt — Output VAT − Input VAT. This is the only amount actually deposited.
🏭
Manufacturer
Sells to Dealer
Cost PriceRs. 10,000
Input VAT (already paid)Rs. 0
✚ Output VAT (13%)Rs. 1,300
Selling PriceRs. 11,300
🏦 Net VAT to GovtRs. 1,300
🚚
Dealer
Sells to Wholesaler
Buys at (incl. VAT)Rs. 11,300
Input VAT (already paid)Rs. 1,300
Expenses + ProfitRs. 1,200
Price (no VAT)Rs. 12,500
✚ Output VAT (13%)Rs. 1,625
Selling PriceRs. 14,125
🏦 Net VAT to Govt1,625 − 1,300 = Rs. 325
📦
Wholesaler
Sells to Retailer
Buys at (incl. VAT)Rs. 14,125
Input VAT (already paid)Rs. 1,625
Expenses + ProfitRs. 875
Price (no VAT)Rs. 15,000
✚ Output VAT (13%)Rs. 1,950
Selling PriceRs. 16,950
🏦 Net VAT to Govt1,950 − 1,625 = Rs. 325
🏪
Retailer
Sells to Consumer
Buys at (incl. VAT)Rs. 16,950
Input VAT (already paid)Rs. 1,950
Expenses + ProfitRs. 1,050
Price (no VAT)Rs. 18,000
✚ Output VAT (13%)Rs. 2,340
Final PriceRs. 20,340
🏦 Net VAT to Govt2,340 − 1,950 = Rs. 390
🏦 How VAT Reaches the Government
This is simply a recap of the yellow "Net VAT to Govt" box on every card above — added together.
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 (13% of the final Rs. 18,000 price). Each seller in the chain only remits the difference between their Output VAT (collected while selling) and Input VAT (already paid while buying) — so the same value is never taxed twice, and the total collected by the government always equals the VAT on the final selling price.
📐 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
✏️ Solve Questions