A manufacturer of furniture sells a sofa set to a retailer for Rs.23000. The retailer, in turn sells sofa set to a customer for Rs.29500. find the VAT rate as percent, if the retailer pays Rs.250 as VAT.

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Solution

Let the rate of VAT be $x %$ .
Hence VAT by retailer to manufacturer $= 23000 \frac{x}{100} = 230 x$
VAT collected from customer by retailer $= 29500 \frac{x}{100} = 295 x$
Hence VAT to be paid by retailer = 295x - 230x = Rs 250 (given)
$\Rightarrow 65 x = 250$ or $x = \frac{250}{65} = 3.85 %$
Therefore VAT percentage is $3.85 %$

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