From The Encyclopedia of Taxation and Tax Policy
The value-added tax (VAT) is a broad-based tax on business designed to measure net dollar value generated in a country. The usual VAT is a general sales tax on all goods and services. It is levied at each stage of production and accumulates so that it is equivalent to a tax on all final household consumption. The VAT is designed to raise large amounts of revenue (typically 5 to 10% of gross domestic product) without creating economic distortions. It has become the most popular sales tax in the world.