How VAT works
VAT that is charged by a business and paid by its customers is known as output VAT (that is, VAT on its output supplies). VAT that is paid by a business to other businesses on the supplies that it receives is known as input VAT (that is, VAT on its input supplies). A business is generally able to recover input VAT to the extent that the input VAT is attributable to (that is, used to make) its taxable outputs. A business recovers Input VAT by setting it against Output VAT payable for a period, known as tax period or return period. While filing VAT return for a period, if Output Tax is more than Input Tax, the business has to pay the difference to the government or if it is the other way round, they can claim the excess amount from the government.
Where a person carrying on an economic activity supplies goods and services to another person, and the value of the supplies cross a certain threshold, the supplier is required to register with the local taxation authorities, have a value added tax identification number, charge its customers and account for VAT.
Certain goods and services will be exempt from VAT (for example, medical care, insurance). Input VAT that is attributable to exempt supplies is not recoverable. Some goods and services are "zero-rated." The zero-rate is a positive rate of tax calculated at zero percent. Supplies subject to the zero-rate are still "taxable supplies," in other words, they have VAT charged on them.
We can see that at respective stages, taxable person is collecting and remitting VAT payable to government. The tax is borne by the buyer by paying 140 from his pocket. The government got the amount from different taxable persons ,i.e. Farmer, Juice Factory and Retailer in the supply chain..
