Value-Added Tax

A value-added tax (VAT) is a consumption tax on a product as a firm adds value to it at each stage of a supply chain between the initial point of production and the sale to that consumer. It is measured as the difference between the cost of the product to the consumer and any costs of production that were untaxed. 

A value-added tax is imposed on the gross margin at various points of manufacture and distribution and is assessed at each stage. It is thus a tax on a consumer’s consumption instead of their income.

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