A publisher sells $400,000 worth of books, magazines, and other reading materials in a given year. The publisher earns a profit of $100,000 that year. Her purchase invoices indicate that she bought $100,000 worth of glue, paper, and other materials during the year. Her labor costs were $150,000, and she purchased $45,000 of new equipment that year. Calculate her tax liability under a 12% consumption-type, value-added tax.
What will be an ideal response?
Value added is $400,000 - $100,000 = $300,000. Because this is a consumption type tax, the
$45,000 of equipment purchases is deducted from the tax base, giving taxable value added of
$255,000. The tax liability is $30,600.
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