What happens to the VAT charged on goods sold to consumers?

When a business sells goods to consumers, the VAT charged is a form of indirect tax that is ultimately intended for government revenue. The correct choice indicates that this VAT is collected by the government through the tax system. When a business sells its products, it acts as an intermediary, collecting VAT on behalf of the government from the final consumer. The business then is responsible for remitting this collected VAT to the tax authorities, typically on a periodic basis, such as quarterly or annually.

This mechanism is crucial as it ensures that the tax is effectively passed along the supply chain until it reaches the end consumer who ultimately bears the cost. The government collects these taxes to fund public services and infrastructure.

The other options do not accurately describe the process:

• The suggestion that VAT is directly repaid to consumers misrepresents how VAT functions, as consumers do not receive refunds of VAT paid on purchases unless they qualify for certain exemptions (which is not the typical scenario).

• The idea that it is retained by the business as profit misunderstands the nature of VAT; what the business charges is not their revenue but a tax they must pay to the government, thus it isn't profit.

• Although VAT does create a liability for businesses until it is paid to the government,