What does VAT stand for?

Value Added Tax (VAT) is defined as a tax on the value added to goods and services at each stage of production or distribution. This means that VAT is levied at each stage of the supply chain where value is added, from the initial production of goods to their final sale to consumers. Businesses collect VAT on behalf of the government when they make sales and can reclaim the VAT they have paid on their own purchases, which allows this tax to be effectively integrated into the price of goods and services.

Understanding VAT is crucial for businesses, as it affects cash flow and pricing strategies. Additionally, it systematically applies to many transactions, ensuring that businesses do not face an exorbitant tax burden at any single transaction, which can make VAT a fair approach to taxation in the economy.

The other options describe taxes that either do not apply to a broad range of goods and services, like luxury items, or target specific transactions, such as property. Furthermore, some options suggest a limitation to only businesses, while VAT is applicable across various entities, including individuals, when they purchase goods and services.