A value added tax (VAT) is a form of consumption tax. From the perspective of the buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the value added to a product, material, or service, from an accounting point of view, by this stage of its manufacture or distribution. The manufacturer remits to the government the difference between these two amounts, and retains the rest for themselves to offset the taxes they had previously paid on the inputs.
The value added to a product by or with a business is the sale price charged to its customer, minus the cost of materials and other taxable inputs. A VAT is like a sales tax in that ultimately only the end consumer is taxed. It differs from the sales tax in that, with the latter, the tax is collected and remitted to the government only once, at the point of purchase by the end consumer. With the VAT, collections, remittances to the government, and credits for taxes already paid occur each time a business in the supply chain purchases products.
Read more about Value Added Tax: Overview, Comparison With Sales Tax, Implementation, Registered, Examples, Imports and Exports, Countries and Territories VAT Free, Criticisms
Famous quotes containing the words added and/or tax:
““When I used to read fairy tales, I fancied that kind of thing never happened, and now here I am in the middle of one! There ought to be a book written about me, that there ought! And when I grow up, I’ll write one—but I’m grown up now,” she added in a sorrowful tone: “At least there’s no room to grow up any more here.””
—Lewis Carroll [Charles Lutwidge Dodgson] (1832–1898)
“In other words, a democratic government is the only one in which those who vote for a tax can escape the obligation to pay it.”
—Alexis de Tocqueville (1805–1859)