VAT Return and Payment Process
A farmer grows cotton which is plucked and sold to a factory
The farmer collects VAT from the factory on behalf of the government
The factory processes the cotton and manufactures clothes which are sold to a retail chain
The factory collects VAT from the retail chain on behalf of the government. The factory receives a refund on the VAT paid to the farmer.
The clothes are stocked in stores and placed for sale to consumers.
The retail outlet collects VAT from the consumer on behalf of the government. The retail outlet receives a refund on the VAT paid to the factory.