when is vat added to a product’s price?

question 19 options:

at the last stage of production

at the point of sale

at every stage of production

at the first stage of production

At every stage of production

Explanation:

The concept of VAT Value added Tax is important to be clear as it is applied in around 150 countries and it considers how much must be paid for every actor involve in the production of any given product to the government.  

The logic is the following: For producing a Christmas three let’s say that we have 3 stages of production: the lumberjacks, the fabric that makes the three and the store that sells it.  

In any stage there is an added value. In stage 1 the lumberjack transforms the natural resource into a usable wood for that he pays a VAT of 3∈. Then, in stage 2 the fabric transforms the wood into the final three and for that the VAT paid is 8∈. But in this point as 3∈ have being already paid by the lumberjack then the fabric only pays (8∈-3∈) = 5∈ to the government.

At the end, in stage 3  the store sells it, and there is also value added to the good, then there is a VAT of 13∈ that want to be paid by the store but as 8∈ have being already paid then the store pays (13∈-8∈)= 5∈. Finally, 5∈ is the actual payment made by the last economical actor of this production line.  

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