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Categories: General Tax Terms

Value-Added Tax (VAT)

Value-Added Tax (VAT) is a consumption tax levied on the value added to goods and services at each stage of production or distribution. It is typically assessed at each stage of the supply chain, from raw materials to final retail sale, and is ultimately borne by the end consumer.

Under VAT, businesses collect the tax on behalf of the government when they sell goods or services and also pay tax on their purchases. The difference between the VAT collected on sales and the VAT paid on purchases is remitted to the government. For example, if a manufacturer sells a product for $100 and collects $20 in VAT, while having paid $10 in VAT on the materials used, the business would remit $10 to the government. VAT is commonly used in many countries around the world as a significant source of revenue.

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