Value Added

Value added tax: Value Added Tax is an indirect tax that is levied upon each stage of the production cycle of a product or service and is based on the value added at each stage of the cycle, from raw material to final distribution among the end consumers. VAT is only applicable to the end consumer and is not a cost to the producer or the distributor.

Unlike sales tax, which is collected and remitted to the government at the purchase by the end consumer, only once, VAT is collected each time a vendor buys a product in its production cycle.

Thus VAT incentives each vendor or company to ensure that the next vendor also pays the VAT, which reduces the chances of tax evasion as there are no exemptions or loopholes. Moreover it also avoids the direct taxation of a direct sales tax. Also, investors looking to invest in overseas market may also take into consideration VAT as an indicator of a more stable fiscal environment.

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Edited and Updated 08th March 2014

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