VAT is a consumption tax placed on a product whenever value is added at each stage of the supply chain, from production to the point of sale. Each participant in the supply chain pays VAT on their purchase price and charges VAT on their sales price, making this system widely prevalent in over 160 countries, particularly in the European Union.

While a sales tax is paid in full by the consumer at the point of sale, a value-added tax is collected as the product moves through the supply chain. To borrow an example from The