VALUE ADDED TAX

Value added tax (VAT) is the tax entering the state budget from the added to the price of goods value. And the question «What is the added value and how is tax paid from it?» will be considered with an example of production and sale of bread.
We know that the process of production of bread starts with the cultivation of bread grain. To do this, the farmer buys the seed, pays money to the driver of the tractor for ploughing land, pays wages to employees engaged in sowing, as well as buying fertilizer, medicine against rodents and other vermin, pays for water used in irrigation. After a long time and through hard labour wheat ripens. The farmer pays back for the harvest combine, to the workers involved in harvesting. Finally, the harvest of wheat is collected. It becomes clear that the farmer has spent 400 manats. And now he should sell the wheat.
Farmer finds a buyer for the wheat and sells its product for 600 manat. Thus, the farmer creates the first added value equal to 600 manats.
Next, the trader brings the wheat by his car to the mill. Assume that for the road to the mill trader spent fuel in the amount of 10 manats. Thus, the purchase cost of wheat and bringing it reached 610 manat. He agreed to sell his wheat to the miller for 710 manat. In a such way he both gets back the amount spent on the wheat and gasoline (610 AZN), and at the same time earns 100 manats. As we can see a wheat trader bought grain for 600 manats, sold it for 710. So he created a second added value equal to 110 manats.
The miller grinds the purchased wheat. He also pays for the cost of electricity, salaries to his employees, buys spare parts for the flour-milling equipment. Assume that for all these he spends 90 manats. At the end flour is produced. Thus, the total consumption in the transformation of wheat by miller into the finished product costs (along with the wheat purchased from the merchant) 800 manats.
Now the miller sells flour to the bakery, let's say for 900 manats and a third added value equal to 190 manat is created (900 manats-710 manats). The owner of a bakery bakes bread from the purchased flour. At that time, he also spends energy, water, salt, pays the employees. Let’s imagine that the entire flow is 100 manats. Along with the money spent on the purchase of flour, a bakery owner costs reach 1000 manats. The owner of a bakery sells bread in the form of 10 thousand loaves to the owner of the shop for 1100 manats (one loaf for 11 qepiks). As we can see the added value created by the bakery reached 200 manats.
Finally, the owner of the store plans to sell the bread for 12 cents.
He cab earn 1200 manats selling 10 thousand loaves.
If we take into account that the owner of the store bought all of bread for 1100 manats, added value created by him is 100 manats. Thus, the total value added from the production of bread, from growing wheat to its sale, was 1200 manat. The state takes 18% of this amount (this is the level of VAT in Azerbaijan), which is 216 manat. This amount is added to the price of the last product, i.e. bread and withheld from the consumer. If you divide 216 manats between 216 loaves, there are 2,16 qepiks on each. So the shopkeeper will sell each loaf for the last price equal to 14.16 qepiks. 12 qepiks of that amount is its planned price. 2.16 qepiks is the VAT, that he was transfers to the state budget after the sale. As we see, in fact, value added tax is indirectly withheld from the consumer. Every day we pay the value added tax when buy any product.