Ahsan Gardezi
Calculation – How To Calculate Sales Tax
Nowadays, it’s pretty standard to know how much an item is going to cost before we buy it. It’s not as simple as just looking at the price-tag and paying for it; sales tax has filled in the gap to determine cost margins for both the buyer and the retailer.
It is no secret that sales tax rates are increasing, making tax impact on a purchase more significant. Let’s look at a few fundamental steps that will help us determine sales tax on our past, or future retail purchases. Get in!
Sales tax is one of the most important aspects of financial institutions pertaining to net business and retail exchange. In most cases, sales tax might help you determine the total cost for any item on your grocery list. Let’s try to understand this concept by looking at an example:
- Let Item cost = $60
- Let Sales Tax Rate = 7.5%
What is the total sales tax on the item?
According to a mathematical formula,
Total Sales Tax = Item Cost x Sales Tax Rate
                                                             = 60 x 7.5%
 = 60 x 0.075
                                   Total Sales Tax = $4.50
By determining the sales tax, you can quickly calculate the total cost of the item, which in this case is nothing but a simple arithmetic calculation:
                                           Total Cost = Item Cost + Total Sales Tax
                                                             = $60 + $4.50 = $64.50
For the sake of your understanding, let’s have a look at another example:
Q. I want to buy a new phone from a marketplace in Islamabad. I have my mind set on getting the new Samsung Galaxy S20 Ultra, which costs Rs 220,000. If the Total cost of the phone in Islamabad is 252,000 rupees, what is the sales tax rate in Islamabad?
Sounds complicated, doesn’t it?
It is actually quite simple. Take a look:
Item Cost = Rs 220,000
Total Cost= Rs 252,000
Sales Tax Rate =??
Total Cost = Item Cost + Total Sales Tax
                                    Rs 252,000 = Rs 220,000 + Total Sales Tax
252,000 – 220,000 = Total Sales Tax
Therefore:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Total Sales Tax = Rs 32,000
Now, we have determined the total sales tax. But what is the rate? Again, a simple solution:
                                      Total Sales Tax = Item Cost x Sales Tax Rate
32,000 = 220,000 x Sales Tax Rate
0.1454 = Sales Tax Rate
                                                                  OR
Sales Tax Rate = 14.54%
This is quite simple, isn’t it? This is how you determine Sales Tax or Sales Tax Rates!
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