Thread by @Jarushub

That is why it is value added tax. The supermarket has added "value" to it, that is why they are not selling at the price they bought it from Nestle. Ultimately, you as final consumer will be the bearer of the tax. This is how it works.

Let's use Milo as example. Nestle imports

https://twitter.com/jideduro/status/1435914910131699715

cocoa from Cote D'Ivoire and pays import VAT. Let's say the unit cost of purchase is N50, Nestle pays VAT of N3.75 on the raw material purchase. As the consumer (ie user) of the cocoa, it suffered N4 VAT (payable to FGN being import VAT). It processes (adds value to the cocoa)

to become Milo and sells at N70. The buyer of the Milo (say distributor) pays N70 and VAT of N5.25 to Nestle. Nestle recovers the N3.75 VAT it paid on its input from the N5.25 it collects on its output (value added = output value - input value) and pays the N1.75 diff

to govt. This is also equal to 7.5% of the N20 value added.

The distributor sells at N80 and collects VAT of N6 from its customer (retailer/supermarket). It recovers the N5.25 VAT it suffered at purchase from the N6 it collected from its own buyer and pays the N0.75 VAT to govt

This N0.75 is also equal 7.5% of the value it added [ie 7.5%*(80-70)]. The final consumer (you and I) buys the Milo from the supermarket at N90 plus VAT of 6.75 but cannot recover the VAT because we are not reselling, we are the final consumer. That is why the burden of VAT is

on final consumer, why it is said to be an indirect tax because everyone in the supply chain has opportunity to recover except final consumer. They are taxed only on value added. You are taxed on whole value.

This is a simplified explanation. VAT is way more than this