VALUE ADDED TAXES Meaning and
Definition
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Value Added Tax (VAT) refers to a consumption tax levied on the value added during each stage of the production and distribution process of goods and services. It is an indirect tax that is typically owed by the end consumer but collected and remitted by businesses to the tax authorities. VAT is based on the principle of treating the value added to a product or service at each stage as tax on consumption.
The tax is calculated by subtracting the value of inputs or purchases from the tax liable on sales. This means that businesses can deduct the VAT they paid on input costs from the VAT they collected on sales, resulting in the payment of tax on the value added. VAT is usually expressed as a fixed percentage of the sale price and represents the difference between the output tax and the input tax.
Value Added Tax is employed by many countries around the world as an important source of revenue for government budgets. It is often seen as a more efficient and transparent means of taxation in comparison to sales tax, as it minimizes tax cascading (taxes on taxes) by only taxing value added at each stage. The burden of VAT, however, ultimately falls on the end user or consumer who pays the final price inclusive of the tax.
Common Misspellings for VALUE ADDED TAXES
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