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The table below visualizes the process. There is a row for each transaction stage and columns for VAT paid, VAT collected, and VAT sent to the government.
| Stage | Sale Price | Price with 10% VAT | VAT Paid | VAT Collected | Amount Sent to Gov't |
|---|---|---|---|---|---|
| Orchard sells to applesauce maker | $1 | $1.10 | $0 | $0.10 | $0.10 |
| Applesauce maker sells to market | $2 | $2.20 | $0.10 | $0.20 | $0.10 |
| Market sells to consumer | $4 | $4.40 | $0.20 | $0.40 | $0.20 |
| Total | $0.40 |
Here is how the process would work using standard Sales Tax. The first two transactions don't matter because they are wholesaler transactions. Only the final sale to the consumer matters.
| Stage | Sale Price | Price with 10% Sales Tax | Sales Tax Collected | Amount Sent to Gov't | |
|---|---|---|---|---|
| Orchard sells to applesauce maker | $1 | $1 | $0 | $0 |
| Applesauce maker sells to market | $2 | $2 | $0 | $0 |
| Market sells to consumer | $4 | $4.40 | $0.40 | $0.40 |
| Total | $0.40 |
In either taxation scenario the government still collects forty cents and everything is even. The difference was WHEN that tax was collected.
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