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The table below visualizes the process. There is a row for each transaction stage and columns for VAT paid, VAT collected, and VAT sent to the government.  

StageSale PricePrice with 10% VATVAT PaidVAT CollectedAmount Sent to Gov't
Orchard sells to applesauce maker$1$1.10$0$0.10$0.10
Applesauce maker sells to market$2$2.20$0.10$0.20$0.10
Market sells to consumer$4$4.40$0.20$0.40$0.20
Total    $0.40

Here is how the process would work using standard Sales Tax. The first two transactions don't matter because they are wholesaler transactions. Only the final sale to the consumer matters.

StageSale PricePrice with 10% Sales TaxSales Tax CollectedAmount Sent to Gov't |
Orchard sells to applesauce maker$1$1$0$0
Applesauce maker sells to market$2$2$0$0
Market sells to consumer$4$4.40$0.40$0.40
Total   $0.40

In either taxation scenario the government still collects forty cents and everything is even. The difference was WHEN that tax was collected.

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