Companies follow different methods in applying tax to the products and services they offer. Some companies calculate the tax value separately from the price of the offered product, making the tax “Exclusive”. Others display product and service prices and emphasize that these prices include the tax, making the tax in that case “Inclusive” of the value of the products or services. Below is the detailed difference between exclusive and inclusive tax.
Exclusive Tax
The tax value is calculated separately from the main product or service price. Afterward, the tax value is added to the product price to calculate the total value, including tax. The tax value is automatically calculated during invoice creation according to the following equations:
Tax Value = Product Value × Tax Rate
Product Value Including Tax = Product Value + Tax Value
Inclusive Tax
The basic price of the product or service is adopted as the final value that includes the tax. The separation between the product’s value and the tax’s value is done through reverse calculation equations applied automatically during the total invoice display according to the following equations:
Product Value Excluding Tax = Base Product Value Including Tax ÷ (100% + Tax Rate)
Tax Value = Base Product Value Including Tax – Product Value Excluding Tax