When is VAT calculated in the discount process?

VAT is calculated after discounts are applied because the value of goods or services upon which VAT is charged is based on the final sale price that the customer pays. Once discounts are applied, the net amount paid becomes the basis for calculating VAT. This approach aligns with the principle that VAT should reflect the actual transaction value, ensuring that the tax liability corresponds to the actual revenue received by the seller after any reductions in price.

This method also aligns with standard accounting practices where the goal is to represent accurate financial statements that reflect taxes based on the true economic transaction. Therefore, once any discounts have been taken into account, VAT is then calculated on that final amount, reflecting the true transaction nature.