Value-added tax definition

The value-added tax (VAT) is a tax levied on products or services as they pass through the steps of the production and distribution process. As the actual value of the product increases (labor, raw materials, profit, etc.) at each stage, the VAT is calculated on that increase. The VAT is collected at the point of final sale.

While the VAT is typically proposed as an alternative to a national income tax, when it has been instituted in many countries, it's often imposed in addition to an income tax.

Exports are generally exempt from VAT or may be refundable thus encouraging export.