A value added type tax (VAT) is a tax on goods or services collected in stages by enterprises but that is ultimately charged in full to the final purchasers.

They are described as a “deductible” tax because producers are not usually required to pay to the government the full amount of the tax they invoice to their customers, being permitted to deduct the amount of tax they have been invoiced on their own purchases of goods or services intended for intermediate consumption or fixed capital formation. VAT is usually calculated on the price of the good or service including any other tax on the product. VAT is also payable on imports of goods or services in addition to any import duties or other taxes on the imports (GFSM2001 11411; OECD, 5111).

System of National Accounts 2008