Question

Bob the Farmer grows vegetables at his farm in South Dakota. He grows his vegetables for sale to food companies. On November 1, he sells his vegetables to Granny’s Pie Company for $65,000, inclusive of 13% VAT. Granny’s Pie Company uses his vegetables to produce savory meat and vegetable pies (they’re huge in the UK). After the production of the pies is complete, Granny’s Pie Company sells the pies to Winn Dixie Grocery Stores for $140,000, inclusive of 13% VAT. Winn Dixie Grocery Stores subsequently sell all of the pies to consumers for $200,000, inclusive of 13% VAT. Assume that meat and vegetable pies are not subject to VAT exemptions (the government has deemed them not essential).

a) How much VAT is remitted to the government in total?

b) How much VAT is remitted to the government at each stage in the production process, and by whom? 4 points Advanced Taxation Spring 2020 c) How much net tax burden is economically borne by each participant in the production process/supply chain?

Answer 1

Part(a)

Total VAT remitted to government is calculated as follows

(200000/113%)*13%

Which is amounts to $ 23008.849

Part(b)

VAT remitted to government at each stage by different parties
Parties	VAT remitted amount
Farmer to Granny pie Company	$7477.876
Granny pie Company to Winn Dixie Grocery		$16106.194
Winn Dixie Grocery to consumers	$23008.849

Part(c)

Calculation of net tax burden of each participant at different stages
			Amount charged	VAT	Net burden of VAT
Farmer to Granny pie Company	Amount charged of $65000 includes 13% VAT,and VAT can be calculated as follows	$65000	$7477.876	$7477.876
($65000/113%)*13% = $ 7477.876
Granny pie Company to Winn Dixie Grocery	Amount charged $140000 inclusive of VAT 13%	$140000	$16106.194	(16106.194-7477.876)      = $8628.318
VAT calculated as follows
[($140000/113%)*13%]
Winn Dixie Grocery to consumers	Amount charged $200000 inclusive of VAT 13%	$200000	$23008.849	(23008.849-16106.194) = $6902.655
VAT calculated as follows
[($200000/113%)*13%]
TOTAL VAT PAYABLE(7477.876+8628.318+6902.655)	$23008.849