VAT stands for Value Added Tax. It is a type of consumption tax imposed on the sale of goods and services. VAT is commonly used by many countries around the world as a means of generating revenue for the government.
The basic principle behind VAT is that it is applied at each stage of the supply chain, from the manufacturer to the retailer, with the tax ultimately being borne by the end consumer. Businesses that are registered for VAT collect the tax from their customers on behalf of the government and are responsible for remitting the tax to the tax authorities.
The specific rate of VAT varies from country to country and can also vary for different goods and services within the same country. Typically, VAT rates range from 0% (for certain essential goods and services) to 25% or more (for luxury goods). The rates and exemptions are set by the respective governments.
VAT is considered an indirect tax because it is not directly paid by the consumer to the government but rather collected by businesses on behalf of the government. It is designed to be a broadly based tax, capturing a portion of the value added at each stage of production or distribution, thus spreading the tax burden across the entire supply chain.
This page is not actively updated, some information may be out of date and should not be used for professional advice.