value-added tax

A tax based on consumption that is levied on the price of the goods being sold. VAT is commonly levied in Europe and essentially is a sales tax. However, the VAT is usually included in the price of the item. If something is selling for £35, the VAT is deducted from the £35, not calculated on top of it, in contrast to the way sales tax is calculated in the United States. Businesses also have to pay VAT on goods and services that are sold. VAT charges are criticized as being a regressive tax because they create a greater burden on poor people than wealthy people. VAT is typically larger than U.S. sales tax. In the 1990s, VAT was around 17.5% in the U.K. and 21% in France.