What is the difference between VAT and Sales Tax?

VAT (Value Added Tax) is a consumption tax applied at each stage of the production and distribution process. It is calculated as a percentage of the sales price, ensuring that businesses at every level—manufacturers, wholesalers, and retailers—collect and remit VAT on the value they add to the product or service. However, to prevent double taxation, businesses can deduct the VAT they have already paid on their purchases from the amount they owe.

This system ensures that the tax burden ultimately falls on the final consumer while allowing businesses to reclaim VAT incurred in earlier stages, promoting transparency and efficiency in tax collection.