Build or decompose a VAT-inclusive price.
VAT-inclusive price
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Net (exclusive)
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VAT element
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Pricing forward versus pricing backward
There are two questions a trader actually asks about VAT, and this tool answers both. The forward question is "I know my cost and the margin I want, what should the shelf price be?" The backward question is "I have a gross price already, how much of it is mine and how much belongs to the tax man?" The two modes here map onto those exactly. Build mode walks from cost to a VAT-inclusive price. Decompose mode takes a finished gross figure apart. Mixing them up is where pricing errors creep in, so pick the mode that matches the number you already have.
The rate sitting underneath both calculations is the standard VAT rate, which this tool applies at 7.5 percent. That headline figure has been stable for several years, and the major tax reform now phasing in kept it at 7.5 percent rather than the higher rates that were floated. Even so, VAT is administered by the Federal Inland Revenue Service, and the safe habit is to confirm the current standard rate and which of your goods are zero-rated or exempt before you reprice a whole catalogue.
From a NGN 5,000 cost to a shelf price
Run build mode with the opening numbers: a cost of NGN 5,000 and a target margin of 40 percent of cost. The tool first marks the item up to a net selling price of NGN 7,000, then adds 7.5 percent VAT of NGN 525, giving a VAT-inclusive shelf price of NGN 7,525. The NGN 525 is not yours to keep. It is output VAT you collect on behalf of the Federal Inland Revenue Service and account for in your return.
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The stacked bar shows how the gross price splits: the bulk is your net price, the thin band on top is the VAT element.
The 7.5 over 107.5 trick for any gross figure
Decompose mode answers the backward question. Suppose a supplier hands you a gross price of NGN 10,750 and you need to know the VAT buried inside it. You cannot just take 7.5 percent of NGN 10,750, because that gross figure already includes the tax. The correct move is to multiply the gross by 7.5 divided by 107.5. That gives NGN 750 of VAT and a net of NGN 10,000. Commit the 7.5 over 107.5 fraction to memory and you can strip VAT out of any inclusive price without this page, which is handy when you are reconciling supplier invoices and want to claim the input VAT you are entitled to.
A margin on cost is not a margin on the sticker
The most common mistake is confusing markup with margin. This tool, in build mode, applies your percentage as a markup on cost: 40 percent of a NGN 5,000 cost adds NGN 2,000. That is not the same as a 40 percent margin on the selling price, which would imply a much higher price. If you think in terms of profit as a share of the final price, your true selling margin here is lower than the number you typed, because the markup is measured against the smaller cost base. Decide which definition your business uses and stay consistent, or you will quietly under-price. And remember VAT is neutral to your profit: you collect it and pass it on, so it never belongs in your margin in the first place.
Should the price I show customers include VAT?
For retail sales to the public, the convention in Nigeria is to display the VAT-inclusive price, the figure this tool calls the gross. The customer pays one round number and your receipt shows the 7.5 percent element separately. Business-to-business quotes are often shown net, with VAT added at invoicing, so the buyer can see the recoverable portion clearly.
If my supply is zero-rated, what changes here?
Zero-rated supplies, such as exports and certain basic items, carry VAT at 0 percent, so the VAT element is nil and the gross equals the net. This calculator uses the standard 7.5 percent rate, so it does not model zero-rated lines. Check with the Federal Inland Revenue Service whether a specific product is standard-rated, zero-rated, or exempt, because the three are treated very differently.