What is Value-Added Tax?

Value- Added Tax ('VAT') in the UK and General Sales Tax in the US is a levy paid by a consumer on a product that reflects the extra value that has been added to it in any stage of production or distribution prior to the consumer purchase (all the stages between the raw materials to the finished product). In practice, the consumer is the only buyer that has to pay 'VAT' as companies involved in a product's manufacture receive reimbursements for previous VAT taxes paid, which essentially negates the effect of 'VAT'.