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Question

A manufacturer produces a good and sells it to a wholesaler at a price of Rs.500 and wholesaler sells it to retailer at a price of Rs.600. The retailer sells it to the customer at a price of Rs.800. If the sales tax charged is Rs 5%. Find the total tax charged by the government under VAT.

A

Rs 95

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B

Rs 89.20

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C

Rs 60

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D

Rs 50

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Solution

The correct option is A Rs 95 Cost of production of manufacturer = Cost of wholesaler = Rs.500. Tax charged by manufacturer from wholesaler = Rs 5% of Rs.500 = Rs.25. Cost charged by wholesaler from retailer = Rs.600 Tax charged by the wholesaler = Rs 5% of Rs.600 = Rs.30. The cost charged by the retailer from customer = Rs.800. Tax charged by retailer from customer = Rs 5% of Rs.800 = Rs.40. The Government collects the same tax at different stages = Rs.(25 + 30 + 40) = Rs.95

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