How does VAT calculation work at checkout?

[rkmsoftware]

We need clarity on the VAT calculation on checkout. Can anyone have a look at @Shopify tax or the tech team?

All products are included in taxes and settings -> market -> preference -> Include or exclude tax based on your customer's country is checked

Case 1:
Product: Test Product

Product Price: 1.00
Charge tax on the product: checked
Cart Product Total: 0.83

Case 2:
Product: Test Product
Product Price: 1.00
Charge tax on the product: unchecked
Cart Product Total: 1.00

[Shay]

Hi @rkmsoftware 

From the examples you shared here it looks like you have it set so that taxes are included in the product price. With this option turned on, the total price of the product set in the product details will be the customer charge price + tax rate.

So if a product is $100 and the tax rate is 20%, the customer would pay $80 for the product and $20 for tax = $100 total at checkout.

My understanding is that for countries that charge VAT tax, that the tax calculation needs to be included in the price of the product before the customer reaches the cart. In that case, you will want to consider the vat tax and adjust your product prices to balance that out so long as you are including tax in the product price. 

[rkmsoftware]

Thanks, @Shay for your reply.

The example you gave of $100 was working for us previously. But our main concern is about the checkout, where Shopify reduces the tax amount from the total product price (as we mentioned in the above query).

As per our investigation so far, we came to know that the setting in settings -> market -> preference -> Include or exclude tax based on your customer's country is responsible for the reduction in the total product price. We perform the below test cases.

1. When Enable both the subsequent options “Include or exclude tax based on your customer’s country” & “Charge tax on this product”

Result: Total product amount in the checkout is 0.83, which should be 1 + 0.17 shown as tax separately.

2. When enabling the option “Include or exclude tax based on your customer’s country” & disable “Charge tax on this product”

Result: Total product amount in the checkout is 1.00, which seems correct because we are charging tax on the product.

Overall it seems an issue from the Shopify checkout calculation side. But still, you can suggest and help us with something.

Thanks