Taxes

Taxes such as Sales Tax, Value Added Tax, and Goods and Services Tax are amounts added to the Price of goods and services. The government imposes these taxes on businesses and individuals to help fund public welfare and development activities.

These taxes are included in many bills, where the total amount is calculated by adding the tax to the product or service's original price.

A person who pays tax to the government is called a taxpayer, while the one who collects tax on the government's behalf is known as a tax collector.

There are different types of taxes, and each type is calculated using a different formula. For example, sales tax is calculated by using this formula.

Formula:
\(Sales Tax = Cost Price × Tax Rate\)

Total Price Formula

\(Total Price = Cost Price + Sales Tax\)

For example: A restaurant charges $60 for a meal. The GST (tax) applied on the bill is 18%. What is the total bill amount?

Solution:
Cost of meal = $60

GST rate = 18%

For $100, GST charged = $18

For $1, GST charged = \(\frac{18}{100}\)
 ​
For $60, GST is charged.

= \(\frac{18}{100} \times 60\)
 

= \($10.80 \)
Therefore, the total bill amount will be:

\(Bill = Cost + GST\)

\(= 60 + 10.80 = $70.80\)

There are two types of taxes based on the type of payment: direct and indirect taxes. Direct taxes are the taxes paid by individuals directly to the government such as income tax, wealth tax, gift tax, capital tax, etc.


The taxes which are indirectly collected by the government are known as indirect taxes such as sales tax, entertainment tax, and customs duty. 

 

Taxes can be used in various ways based on the cost and category of a product or service. Knowing the basic concepts of taxation helps us to understand how the final amount we pay is determined. Some concepts are related to taxes:
 

• Tax on Marked Price
   
• Sales Tax
   
• Value-Added Tax (VAT)
   
• Goods and Services Tax (GST)
   

Tax on Marked Price:

Tax is calculated on the marked price when the seller sells an item at that price, without any discount. In this situation, the marked price and the selling price are the same. Therefore, the tax is directly applied to the marked price. 

For example, the marked price of a school lunch box is $40. The seller gives no discount. If the tax rate is 10%, what is the total amount to be paid?

Solution:

Formula

\(\text{Tax} = \frac{\text{Tax%} \ \times \ \text{Marked Price}}{100}\)

\(Selling Price = MP + Tax\)

Marked price = $40

Discount = No discount

Tax rate = 10%

Tax on $1 = \(\frac{10}{100}\)

Tax on $40 = \(\frac{10}{100} \times 40\) = $4

\(Total amount to be paid = Marked Price + Tax\)

\(= 40 + 4 = $44\)

Sales Tax:

Sales tax is a government-imposed charge that is applied to products when they are sold. This tax is collected from the customer by the shopkeeper and then submitted to the government later. It is added to the total bill amount and is determined by the product's selling price.

For example, a book is sold for $50, and the sales tax rate is 8%. What is the total bill amount?

Solution:
Formula

Sales Tax = \(\frac{\text{Sales Tax%}\ \times\ \text{Price}}{100}\)

\(Total Cost = Price + Sales Tax\)

Selling price of the book = $50
Sales tax rate = 8%

Tax on $1 = \(\frac{8}{100}\)
Tax on $50 =  \(\frac{8}{100} \times 50 = 4\)

\(Total bill amount = Selling Price + Sales Tax\)

\(= 50 + 4 = $54. \)

Value-Added Tax(VAT):

Value-Added Tax (VAT), the government collects this kind of tax to help pay for welfare programs and public services. This tax is usually added to the marked price of a product, so customers automatically pay it during purchase. Today, a set percentage of VAT is added to the price of the majority of goods and services.


For example, a packet of cookies is priced at $12, and this price already includes 10% VAT. What is the VAT amount included in the price?

Solution:
Formula

VAT Amount = \(\frac{\text{VAT%}\ \times\ \text{Price}}{100}\)

\(​​​​​​​Total Price = Price + VAT Amount\)

Price of cookies (including VAT) = $12

VAT rate = 10%

VAT amount

\(= \frac{10}{100} \times 12 = \$1.20 \)

So, the VAT included in the price is $1.20, and the cost before VAT would be: 12−1.20=$10.80.

Goods and Services Tax(GST):

GST stands for Goods and Services Tax. It is a modern tax introduced by the government on 1st July 2017. GST is applied whenever goods, services, or both are supplied. It replaces many older taxes and consolidates them into a single system.

For example, A store sells a backpack for $80. The GST rate on the item is 12%. What is the total amount the customer has to pay?

Solution:

\(\text{GST Amount} = \frac{\text{GST%}\ \times\ \text{Price}}{100}\)

\(Total Price = Price + GST Amount\)

Price of the backpack = $80

GST rate = 12%

GST on $1 = \(\frac{12}{100}\)
​
GST on $80
= \(\frac{12}{100} \times 80 = 9.60\)

Total amount to be paid

\(= 80 + 9.60 = $89.60 \)
So, the customer must pay $89.60, including GST.

Understanding the concept of taxes is essential for students, but learning about them can get boring at times. To make the learning fun and engaging, let’s learn a few tips and tricks. 

 

• Understand the basics: To master tips and tricks, it is essential to learn the basics of taxes. 
  
   
• Keep track of the deductions and credits 
  
   
• International students may qualify for tax exemptions under tax treaties, so they should understand their tax residency status. 
  
   
• If a student is doing freelance work or part-time work, they can get an exemption by tracking the expenses.
  
   
• Connect taxes to everyday things like shopping bills or food orders to understand them easily.
   
• Show children grocery or restaurant bills to explain how tax is computed for different items.
   
• Teach the difference between the price before tax and after tax. This helps children understand the before-tax price (original cost) and the final price after tax is added.
   
• Use easy values like $10 or $100 to help students understand how the amount of tax is calculated.
   
• Connect the tax learning with percentages, profit & loss, and compound interest to strengthen overall understanding.

Taxes play a major role in our real world as it is collected by the government from individuals and organizations. Let’s see why it is important to pay taxes.

• Building Roads and Bridges: Taxes fund the construction and repair of roads, bridges, and highways, making travel safer and smoother for everyone daily.
  
   
• Supporting Schools and Education: Tax money pays for teachers, school buildings, books, and scholarships, ensuring children receive quality education without extra financial burden.
  
   
• Maintaining Hospitals and Healthcare: Taxes support public hospitals, medical staff, and free health programs that provide treatment, vaccinations, and emergency care to citizens.
  
   
• Public Transportation: Bus, train, and metro systems often depend on tax funding to ensure affordable, safe, and efficient transport for all commuters.
  
   
• Government Employee Salaries: Teachers, police officers, nurses, and other government workers receive their salaries from tax collections that sustain public services nationwide.