What is value-added tax?

Answer:
Value-added tax is a tax levied on the increased value of a product

at each stage of the business process.

When a manufacturer sells its product to a retailer for a slightly higher price than was paid to make the product, a tax is levied only on the difference in value. For example, if a manufacturer spends $100 to make a product then sells the product to a retailer for $150, only the $50 profit is taxed. Value-added tax is similar to income tax in that the net profit from the sale of the product is what is taxed.

Sales tax levies a tax on the total amount of money spent in the business process. For example, if the manufacturer spends $100 to make a product then sells it to a retailer for $150, the sales tax is levied on the entire $150 price that the retailer paid.