value-added tax

General consumption tax assessed on the value of goods and services, applied at each stage of the production of a commodity, and charged only on the value added at that stage. It is a general tax because the tax applies to all commercial activities that involve the production and distribution of goods and the provision of services; and a consumption tax because the burden falls on the consumer. VAT is charged as a percentage of price. In the USA the individual states impose their own sales taxes. A 2001 initiative that has broad state approval, the Streamlined Sales Tax Project, aims to simplify and modernize sales and use tax collection and administration.

VAT is imposed by the European Union (EU) on member states. The First VAT Directive of 1967 legislated that every member state should replace its general indirect taxes with a system of value-added tax. The laws establishing the value-added tax are still national laws, and so while the EU attempts to move to a broadly uniform VAT system and rate it has yet to achieve it.