Quick answer: to add tax, multiply by (1 + rate): 1,000 + 18% GST = 1,000 × 1.18 = 1,180. To remove tax from a price that already includes it, divide by (1 + rate): 1,180 ÷ 1.18 = 1,000. Don’t subtract 18% of 1,180 – that gives 967.60, which is wrong.
The most common mistake: subtracting the rate
If a receipt says 120 including 20% VAT, the tax is not 20% of 120 (24). VAT was added to the net price, so the net is 120 ÷ 1.20 = 100 and the VAT is 20. A shortcut for 20% VAT: the tax is one sixth of the gross price. For 18%, it is 18/118 of the gross.
Common rates (check the latest for your product)
| Country | Tax | Standard rate |
|---|---|---|
| Pakistan | Sales tax (GST) | 18%, with provincial services tax on services |
| India | GST | 5%, 12%, 18% or 28% by product |
| United Kingdom | VAT | 20% (5% and 0% on some goods) |
| United Arab Emirates | VAT | 5% |
| Saudi Arabia | VAT | 15% |
| Canada | GST / HST | 5% GST; 13–15% HST in some provinces |
| United States | Sales tax | Set by state and city, about 0–10% |
Rates change with budgets and differ by product, so confirm the current rate with your tax authority or accountant before invoicing.
Net, tax and gross
- Net – the price before tax (what the seller keeps).
- Tax – net × rate, paid to the government.
- Gross – net + tax, what the customer pays.
Setting prices? Work out the margin with the profit margin calculator before adding tax, and use the discount calculator to check what a promotion does to the final price.
How to add or remove sales tax
- Choose add or remove. Add tax to a net price, or remove it from a price that already includes tax.
- Enter the amount. Any currency – choose it for nicer formatting.
- Enter the tax rate. Type it or tap a common rate.
- Read net, tax and gross. All three amounts appear together with the formula used.
Worked example: an invoice with three lines
Three items at 99.99 each, 17% sales tax.
| Method | Tax | Invoice total |
|---|---|---|
| Tax on each line (17.00 × 3) | 51.00 | 350.97 |
| Tax on the total (299.97 × 17%) | 50.99 | 350.96 |
The one-cent difference comes from rounding. Tax rules or your accounting software decide which method to use – be consistent on every invoice.
Common mistakes
- Removing tax by subtracting the rate from the gross price.
- Charging tax on prices that already include it (shelf prices in VAT countries).
- Using the standard rate for goods that have a reduced or zero rate.
- Mixing net and gross prices in the same price list.
Frequently asked questions
How do I add 18% GST to a price?
Multiply by 1.18. 1,000 becomes 1,180, of which 180 is GST.
How do I remove VAT from a price?
Divide the gross price by (1 + rate). For 20% VAT: 120 ÷ 1.2 = 100 net, so the VAT is 20.
Why can’t I just subtract the percentage?
Because the tax was calculated on the smaller net price. Subtracting the rate from the gross price removes too much.
Is VAT the same as sales tax?
Both are taxes on sales. VAT/GST is collected at every stage of production and usually included in shelf prices; US sales tax is added only at the final sale.
What rate should I use?
The rate that applies to your product and location. Many countries have reduced rates for food, medicine or books.
Can I use this for invoices?
Yes, for checking amounts. Your accounting software or tax rules decide rounding per line or per invoice.
How do I calculate VAT backwards?
Divide the gross amount by (1 + rate) to get the net, then subtract. For 20% VAT: tax = gross ÷ 6.
What is the difference between inclusive and exclusive tax?
Inclusive prices already contain the tax (gross); exclusive prices have tax added at the till (net).