Value Added Tax (VAT)
VAT: Value Added tax refers to the tax applied to value-added as per prescribed rate. In fact, it is a multi-stage indirect tax imposed on the value added at different stage starting from production to distribution process. It is a consumption tax placed on a product whenever the value is added at each stage of the supply chain, from production to the point of sale.
According to Oxford Dictionary, Value Added Tax means “A tax on the amount by which the value of an article has been increased at each stage of its production.” The amount of VAT that the user pays is on the cost of the product, less any of the costs of materials used in the product that has already been taxed. Don’t confuse the VAT with sales tax. Under a sales tax, the tax is collected only once at the consumer’s point of purchase. The VAT tax, however, is collected every time a business purchases products from other businesses within the product’s supply chain.