A VAT, or value-added tax, is a type of tax that is assessed incrementally on the price of a product or service at each stage of production, distribution, or sale to the end consumer. It is a consumption tax on goods and services that is levied at each stage of the supply chain where value is added, from initial production to the point of sale. Some key features of VAT include:
- It is usually collected by the end retailer, making it similar to a sales tax.
- It is a flat tax levied on an item, with portions of the tax amount paid by different parties to a transaction.
- It is a consumption tax because it is ultimately borne by the final consumer, not businesses.
VAT is a widely used tax system in many countries around the world, including the European Union. It is designed to be more direct and less complicated than sales taxes or gross turnover taxes, and is easier to track because it is levied at each stage of production and distribution.
