In Denmark, VAT is applied at a rate of 25%, with few exceptions. If vendor A sells raw materials to vendor B for $60,000 plus VAT, and vendor B sells a product to vendor C for $130,000 plus VAT, and vendor C sells an improved product to an end-user for $250,000 plus VAT, (a) what is the amount of tax collected by vendor B? (b) How much tax does vendor B send to Denmark’s Treasury?

What will be an ideal response?


(a) Tax collected by vendor B = 130,000(0.25) = $32,500

(b) Tax sent by vendor B = amount collected – amount paid to vendor A
= 32,500 – 60,000(0.25) = $17,500

(c) Amount collected by Treasury = 250,000(0.25) = $62,500

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