value added tax


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value added tax
Value Added Tax (VAT) is a type of indirect tax imposed on the sale of goods and services in the European Union (EU). It is collected at different stages of production and is ultimately paid by the consumer when they purchase a product or service. The tax is based on the value added to the product or service at each stage of production. This means that the amount of VAT charged on a product or service is based on the price at which it was sold. In the EU, the standard rate of VAT is set at 15%. Businesses are responsible for collecting the tax and paying it to the government. They are able to deduct the amount of VAT that they have paid on their own purchases from the amount of VAT they owe on their sales. An example of how a product can be affected by VAT is the sale of a television. If you purchase a television for €300, the business selling it will charge you €345 (including 15% VAT). This means that the business must pay the government €45 of the €345 sale price. VAT is different from sales tax, which is a direct tax paid directly to the government by the consumer. This means the consumer pays the full amount of tax on the purchase price. For example, if you purchase a television for €300, the government will collect €45 in sales tax. VAT is important to governments because it is a reliable source of revenue and it encourages businesses to remain compliant with tax laws. In 2016, the EU’s VAT revenues made up 26.3% of the bloc’s total tax revenues. Fun Fact: The world’s highest VAT rate of 27% is in Hungary, followed by the Czech Republic at 21%.