What is the Value Add Tax?

The VAT (Value Added Tax) is an indirect tax applied to the consumption of goods and services in many countries around the world. It is a tax added to the price of products or services and is charged to the final consumer at each stage of the production and distribution chain.

HOW IS VAT APPLIED?

VAT is applied at different percentages, depending on the country and the category of goods or services. Generally, it is divided into different types of rates, such as the standard rate, reduced rate, and super-reduced rate. The standard rate is usually applied to most goods and services, while reduced rates are applied to specific products such as basic food items, medicines, and books. The super-reduced rate is used for essential goods and services, such as some basic food products.

How does VAT work?

VAT is collected at each stage of the production and distribution chain. Each company that sells a product or service must add the corresponding tax to the selling price. In turn, when that company purchases raw materials or services from other companies, it can deduct the VAT paid previously. This is known as the “input tax credit” mechanism and helps prevent the accumulation of tax at each stage.