Value-Added Tax - VAT

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DEFINITION of 'Value-Added Tax - VAT'

A type of consumption tax that is placed on a product whenever value is added at a stage of production and at final sale. Value-added tax (VAT) is most often used in the European Union. The amount of value-added tax that the user pays is the cost of the product, less any of the costs of materials used in the product that have already been taxed.

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BREAKING DOWN 'Value-Added Tax - VAT'

For example when a television is built by a company in Europe the manufacturer is charged a value-added tax on all of the supplies they purchase for producing the television. Once the television reaches the shelf, the consumer who purchases it must pay the value-added tax that applies to him or her.

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RELATED FAQS
  1. What are some of the arguments against a value added tax (VAT)?

    Critics of the value-added tax, or VAT, system say that not only is it costlier to implement compared to the ad valorem system, ... Read Full Answer >>
  2. What are some examples of a value added tax?

    A value-added tax (VAT) is a consumption tax levied on products at every point of sale where value has been added, starting ... Read Full Answer >>
  3. What are some of the arguments in favor of a value-added tax (VAT)?

    A value-added tax (VAT) offers several advantages over an income tax or traditional sales tax. It raises needed government ... Read Full Answer >>
  4. What are some of the arguments for and against a Value Added Tax (VAT)?

    A value-added tax (VAT) is a type of consumption tax placed on a product whenever value is added at a stage of production ... Read Full Answer >>
  5. What are the tax incentives or disincentives to vertical integration?

    In certain jurisdictions, such as the countries that are members of the European Union, there is a system of taxation called ... Read Full Answer >>
  6. What is Value-Added Tax (VAT) and who pays it?

    Value-added tax (VAT) is a consumption tax, meaning that it is a tax on the purchase of a product or a service. It is a form ... Read Full Answer >>

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