what is vat

VAT stands for Value-Added Tax, which is a type of tax assessed incrementally on the value added to goods and services as they move through the supply chain. It is a consumption tax that is ultimately paid by the final consumer, but it is levied at each stage of production, distribution, or sale to the end consumer. VAT is a general tax that applies to all commercial activities involving the production and distribution of goods and the provision of services. It is a flat tax levied on an item, similar to a sales tax, but with a VAT, portions of the tax amount are paid by different parties to a transaction. The VAT due on any sale is a percentage of the sale price, but from this, the taxable person is entitled to deduct all the tax already paid at the preceding stage, so double taxation is avoided, and tax is paid only on the value added at each stage of production and distribution. VAT is easier to track than some tax systems because it’s levied at each stage, and all merchants are required to maintain meticulous records of purchases, sales, and supplies. VAT is a common form of consumption tax, and more than 170 countries worldwide, including all of the countries in the European Union, levy a VAT on goods and services.