VAT is an acronym for value-added tax. VAT is a type of consumption tax placed on goods and services at their final value or purchase price.
The VAT a consumer pays excludes the VAT already paid on the product or service. This typically includes indirect costs and overhead such as materials and supplies, which the manufacturer of the product has typically already paid.
Value-added tax differs from sales tax in that sales tax is imposed on the sale of tangible products and select services, whereas VAT is paid at each stage of the manufacturing process and then charged in full to the final purchaser.