Value Added Tax (VAT)
A value-added tax (VAT) is a tax on the sales of goods and services to consumers. However, unlike a traditional retail sales tax that is collected only on final sales to consumers, a VAT is collected from businesses at each stage of the production process. Under the most common form of collection—the credit-invoice method—all sales by businesses are taxable, but firms are able to claim credits for all taxes paid on purchases from other registered businesses. The net result is that business-to-business transactions are untaxed and the tax base is equal to the full value of the final sale to the consumer.
Revenue and Distributional Effects of a VAT
The VAT and the U.S. Fiscal Crisis
See posts about the VAT on TaxVox, TPC’s blog