# Talk:VAT

I think the calculation for the shown example is wrong. It claims "If a citizen decides to sell one unit of Food for \$1.00, and the countries VAT for food is 5%, then he will earn just \$0,95 for that unit of Food (1,00 - 0,05)" and I think that's not correct.

The VAT is an amount that must be applied over the price the seller wants to retrieve. For instance, suppose a citizen wants to earn \$1,00 and the VAT is 5%. Considering this, we add 5% to \$1 and obtain \$1,05 (\$1,00 + \$1 * 5%). Then, the final price is \$1,05. If a citizen wants to get \$1,00, then he should set the selling price to \$1,05. As you can deduce, if \$p is the price and v% is the VAT, the selling price \$s would be \$p * (1 + v%).

The next question is the following: given a selling price \$s and a VAT of v%, which is the amount \$p the seller will get? Considering that:

\$s = \$p * (1 + v%)

The amout \$p that a seller will get is:

\$p = \$s / (1 + v%)

For instance, consider a country where the VAT over food is 15% (Chile) and a selling price of \$1. Then we have:

\$p = \$1,00 / (1 + 0,15) =~ 0,8696

This math fits with the numbers shown on eRepublik when selling on Chile:

Price / unit = 1

Tax / unit = 0,1304

(Price / unit) - (Tax / unit) = 1 - 0,1304 = 0,8696

For the example shown in the page, the numbers could be set to the following values:

Selling price: \$1,05 VAT: 5% Earning: \$1,00

I hope you can understand my english. Best regards.

I hope you can understand my english. Best regards.