Value-added tax (VAT) is a type of consumption tax assessed on the value added to goods and services as they move through the supply chain, from initial production to the point of sale. It is a tax levied on all sales of commodities at every stage of production, distribution, or sale to the end consumer. VAT is designed to tax only the value added by a business on top of the services and goods it can purchase from the market. The amount of VAT is decided by the state as a percentage of the price of the goods or services provided. VAT is collected fractionally, via a system of partial payments whereby taxable persons (i.e., VAT-registered businesses) deduct from the VAT they have collected the amount of tax they have paid to other taxable persons on purchases for their business activities. The end consumer does not receive a tax credit, making it a tax on final consumption.

Key features of VAT include:

• Assessment: VAT is assessed incrementally on the price of a product or service at each stage of production, distribution, or sale to the end consumer.
• Credit: Every business along the value chain receives a tax credit for the VAT already paid.
• Transparency: VAT does not affect the prices firms ultimately pay for inputs, and it does not create "cascading" or "tax on tax" that arises when tax is charged both on an input into some process and on the output of that same process.
• Exemptions: VAT has many specific exemptions, exemptions for retail trade, differential treatment of imports and domestic sales, and, in some cases, artificially constructed "manufacturers prices".

VAT is a flat tax levied on an item, similar to a sales tax in some respects. However, with a sales tax, the full amount owed to the government is paid by the consumer at the point of sale, while with VAT, portions of the tax amount are paid by different parties to a transaction. More than 170 countries worldwide, including all of the countries in the European Union, levy a VAT on goods and services.