Value Added Tax (VAT)
Value Added Tax (VAT) is a consumption tax levied on the sale of goods and services at each stage of production or distribution. Businesses charge VAT on their sales and pay VAT on their purchases. The difference between the VAT collected and the VAT paid is what the business owes to the government. This system allows for tax to be applied incrementally, meaning it only taxes the value added at each stage rather than the entire sale price, making it fairer and minimizing tax cascading. VAT is commonly used in many countries around the world as a significant source of government revenue.
Additional Insights
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Value-Added Tax (VAT) is a consumption tax applied to the value added at each stage of production and distribution of goods and services. Essentially, businesses charge VAT on their sales and can recover VAT they paid on their purchases. This system prevents tax on tax, ensuring that the final consumer ultimately bears the tax burden. It is commonly used in many countries around the world as a way to generate government revenue and is typically included in the price of products, making it less visible to consumers at the point of sale.