A value-added tax (VAT), also known as Goods and Services Tax (GST), Single Business Tax, or Turnover Tax in some countries, applies the equivalent of a sales tax to every operation that creates value. To give an example, sheet steel is imported by a machine manufacturer. That manufacturer will pay the VAT on the purchase price, remitting that amount to the government. The manufacturer will then transform the steel into a machine, selling the machine for a higher price to a wholesale distributor. The manufacturer will collect the VAT on the higher price but will remit to the government only the excess related to the "value-added" (the price over the cost of the sheet steel). The wholesale distributor will then continue the process, charging the retail distributor the VAT on the entire price to the retailer, but remitting only the amount related to the distribution mark-up to the government. The last VAT amount is paid by the eventual retail customer who cannot recover any of the previously paid VAT. For a VAT and sales tax of identical rates, the total tax paid is the same, but it is paid at differing points in the process.
A value-added tax (VAT) also known as Goods and Services Tax (GST) Single Business Tax or Turnover Tax in some countries applies the equivalent of a sales tax to every operation that creates value To give an example sheet steel is imported by a machine manufacturer That manufacturer will pay the VAT on the purchase price remitting that amount to the government The manufacturer will then transform the steel into a machine selling the machine for a higher price to a wholesale distributor The manufacturer will collect the VAT on the higher price but will remit to the government only the excess related to the "value-added" (the price over the cost of the sheet steel) The wholesale distributor will then continue the process charging the retail distributor the VAT on the entire price to the retailer but remitting only the amount related to the distribution mark-up to the government The last VAT amount is paid by the eventual retail customer who cannot recover any of the previously paid VAT For a VAT and sales tax of identical rates the total tax paid is the same but it is paid at differing points in the process