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Value-Added Tax (VAT)

A consumption tax applied at each stage of the supply chain.

Value-Added Tax (VAT) is a consumption tax levied on the value added to goods and services at each stage of production or distribution. Unlike a sales tax applied only at the final point of sale, VAT is collected incrementally. Businesses can reclaim VAT paid on their inputs, so the tax ultimately falls on the end consumer. VAT is used by over 160 countries worldwide. The US is notably one of the few major economies without a national VAT.

Related Terms

Goods and Services Tax (GST)

A broad consumption tax similar to VAT, used in countries like Australia and India.

Sales Tax

A consumption tax applied at the final point of sale to the end consumer.

Consumption Tax

A tax on spending on goods and services rather than on income.