A toy maker spends RM 1 on purchase of raw material to make a toy.
Toymaker sells the toys wholesale to a retailer for RM1.20 each and makes a profit of (1.20-1) = 20 sen.
The retailer sells the toy to a consumer at RM 1.50 each making a profit of 30 sen.
Toy maker pays RM 1 for raw materials-he pays no taxes because he is not a consumer.
Toy maker sells to retailer at RM 1.20 who is not an end buyer and still makes 20 sen as in the case where he pays no taxes.
Now, the retailer charges 10% sales tax on final buyer/consumer. He sells to consumer at RM1.65 (RM 1.50 + 10% of RM1.50). He carries out extra paper work to pay the government the amount of the sales tax of 10% i.e. 15 sen. He still makes a profit of 30 sen, the same as in the no tax regime.