Civic Arithmetic

Value-Added Tax (VAT):

Value Added Tax (VAT) is the proportion of money the government gets for payment of certain goods and services. 

In Nigeria, the Government charges 5% VAT on the cost of VAT-able goods. The VAT is then used by the government to improve public services such as transportation, healthcare, power, education etc.

Example 1.6.1:

An advertisement for a chair says that its price is ₦35 700 plus 5% VAT. How much does the customer pay? 

Solution 

VAT = 5% of ₦35 700 

\( \frac{5}{100} \scriptsize \: \times \: ₦35700 \\ \scriptsize = ₦1785 \)

Amount paid by customer = ₦35 700 + VAT 

= ₦35 700 + ₦1785 

= ₦37 485

The government receives ₦1785 as VAT

Example 1.6.2:

Lagoon Hospital Ikoyi paid a ₦105,400 electricity bill which included 7% VAT to PHCN. How much does the government receive as VAT on the bill?

Solution

VAT = 7% of ₦105 400

\( \frac{7}{100} \scriptsize \: \times \: ₦105400 \\ \scriptsize = ₦7378 \)

The government receives ₦7378 as VAT.