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Value-Added Tax (VAT)

A value-added tax (VAT) is a sales tax levied at every step in a production process. The VAT is collected when goods or services are purchased throughout the production process, from initial purchase of raw materials to the sale of the final product at a retail outlet. In some countries, such as Canada, VAT is known as “goods and services” tax (GST).

Consumption Versus Saving

Individuals can do two things with their income: (1) they can consume (spend) it or (2) they can save it. In an income-based tax system, both consumption and savings are taxed; in a consumption-based tax system, only consumption (income minus savings) is taxed. Consumption taxes are very popular with governments around the globe; the United States is the only developed nation without ...

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