What is Value-Added Tax?

Value-Added Tax is a consumption tax placed on goods and services by over 167 countries. (Photo by Nick Youngson, Alpha Stock Images)Value-Added Tax, more commonly referred to as VAT, is a consumption tax.

Consumption taxes are placed on goods and services for the purpose of taxing people on how much they consume rather than how much they earn (i.e. income tax).

Specifically, a VAT is a tax on the difference between what a producer pays for raw materials and labor and what the producer charges for finished goods.

What countries collect VAT?

Currently, approximately 167 of the world’s 193 countries use value-added tax (VAT). The United States does not have a VAT system.

Starting in January 2019, Bahrain became the most recent country (and the third of the six GCC member states) to implement this consumption tax.

Value-Added Tax by Country

EU Value-Added Tax Increase