Value Added Tax

indirect percentage tax levied on products or services at various stages of production and distribution. The actual value added to the product, including raw materials, labor, and profit, is determined at each stage or state of production and the tax is computed upon the increase in value. It is basically a tax allocated among the economic units responsible for the production and distribution of goods and services. Because collection of VAT takes place at the product's ultimate destination, VAT is not charged on export sales. VAT is charged on all domestically sold products regardless of the country of origin. Thus VAT is designed to provide an incentive to export and, of course, a disincentive to import.