Taxes are one thing which is unanimously hated by all people all over the world because nobody likes to pay taxes and when you couple it with confusing terms than it becomes an even bigger demon. Tax exclusive and Tax inclusive are two such terms which confuse many people and due to it, many people end up paying a higher tax rate which is the reason why one should be aware of the differences between tax exclusive and tax inclusive –
Tax exclusive as the name suggests refers to that tax which is exclusive to the value of the good which implies that tax is charged on the total value of the good. Hence for example if the total value of the good is $200 and tax on that good is $20 then after-tax rate of that good is $220 and when you divide it by the price of the good you get an exclusive tax rate of 10 percent which is calculated as $20/$200.
Tax-inclusive as the name suggests refers to that tax which is inclusive of the value of total purchase done by the consumer. Hence in the above example if the tax-inclusive rate of the good is $220 and tax amount of $20 remaining same than tax rate will be 9.09 percent which is calculated as $20/$220. Hence numerator remains same in both situations it is the denominator which has changed resulting in the lower tax rate in percentage terms in case of the inclusive tax system and higher tax rate in case of the exclusive tax system.
As one can see from the above that tax-inclusive rate will be always lower than tax-exclusive rate and that is the reason why one should be aware of this difference because when taxable amount is small proportion of total amount it is not much of the difference but when taxable amount is large proportion of total amount than this can be problem. Hence if in the above example if the taxable amount was $100 than exclusive tax rate will be 50 percent and inclusive tax rate will be 33.33 percent which is a huge difference as far as the taxpayer is concerned.