value-added tax

Meaning

Value-added tax (often abbreviated as VAT) is a consumption tax assessed on the value added to a product or service at each stage of its production or distribution. Unlike a flat sales tax, it is collected incrementally throughout the supply chain, though the ultimate burden falls on the final consumer. It is a standard tax system used in many countries worldwide, excluding the United States.

Examples

• The government announced an increase in the standard rate of value-added tax to twenty-one percent.

  The government announced an increase in the standard rate of value-added tax to twenty-one percent.

• Foreign tourists can often claim a refund on the value-added tax paid on luxury goods.

  Foreign tourists can often claim a refund on the value-added tax paid on luxury goods.

• Businesses must register for value-added tax once their taxable turnover exceeds the legal threshold.

  Businesses must register for value-added tax once their taxable turnover exceeds the legal threshold.

• The price displayed on the shelf is inclusive of all value-added tax.

  The price displayed on the shelf is inclusive of all value-added tax.

• Calculating the correct value-added tax on cross-border digital services can be highly complex.

  Calculating the correct value-added tax on cross-border digital services can be highly complex.

Common Mistakes

• ✗ We paid a value-added tax of 10% on our employee salaries.

  ✓ We paid payroll tax on our employee salaries, but we pay value-added tax on our raw materials.

  Value-added tax is a consumption tax on goods and services, not a tax on employment wages or salaries.

• ✗ The store charged me a high value-added tax rate for my income.

  ✓ The store charged me value-added tax on my purchase.

  VAT is independent of the buyer's income level; it is levied on the transaction value of the product or service itself.

Related Expressions

Practice

• Most European countries levy a ___ on goods at every stage of production.

  💡 A consumption tax often abbreviated as VAT.

  Show answer

  value-added tax

• We need to adjust our pricing model to account for the local ___ rates in the EU.

  💡 The incremental tax applied to products and services.

  Show answer

  value-added tax