Value Added Tax or VAT is an indirect tax paid by the consumer through a registered person. The VAT on a particular good or service is determined by adding the actual value of the good or service while adjusting for input tax payable against the supplied good or service.

For example, if a good was purchased for Taka 1000 and sold at Taka 1500, an amount of Taka 130.43 was included as VAT on the purchase price of Taka 1000 (Calculation: 1000x15/115). Similarly, a VAT amount of Taka 195.65 is included in the selling price of Taka 1500 (Calculation: 1500x15/115).

If the good is sold at Taka 1500 and the seller has already paid VAT on the purchase price, the seller will pay VAT on the added value of Taka 500 at the sale stage. This means he can take back the VAT paid during the purchase phase.

Breakdown of Calculation:

• Payable VAT on Taka 1500 = Taka 195.65
• VAT included in Taka 1000 = Taka 130.43
• Net payable VAT on Taka 500 = Taka 65.22

Calculation by seller: $=(500\times 15/115)=\left((1500\times 15/115)-(1000\times 15/115)\right)=65.22\text{Taka}$