VAT (Value Added Tax) is a consumption tax that is applied to goods and services at each stage of the supply chain where value is added. It is ultimately borne by the end consumer, as businesses along the supply chain collect and remit the tax to the government but do not retain it.
Key Features of VAT :
Applied at Multiple Stages : VAT is charged at every stage of production and distribution—whenever value is added. For example:
* A manufacturer charges VAT on the products sold to a wholesaler.
* The wholesaler charges VAT when selling to a retailer.
* The retailer charges VAT when selling to the final consumer.
Input Tax Credit (ITC) : Businesses can claim a credit for the VAT they have paid on purchases (input tax) against the VAT they charge on sales (output tax). This ensures that VAT is only applied to the value added at each stage.
Final Burden on Consumers : Although VAT is collected throughout the supply chain, the tax is ultimately paid by the end consumer, who cannot claim an input tax credit.
