Tax being calculated incorrectly

If the price includes 5% tax, then:
customer pays €81.50 = 100% + 5% = 105%
tax = €81.50 / 1.05 = €3.88
seller’s income = €81.50 – €3.88 = €77.62
€77.62 x 5% = €3.88
WC is correct.

I see,
Is there a way to have WC calculate 5% of the 81.50 ?

In settings I did mention that price I place includes VAT.

The 81.50 includes the 5 % VAT, but I need the VAT amount to still show.

Thanks

To get 5% added to €81.50 then in settings put that your price excludes tax.

I see.
So if the 81.5 already includes VAT, WC will not see VAT as 5% of 81.50 (namely a VAT of 4.08) but calculate it as you did before ?

Yes. The thing is VAT is added to the seller’s cut.