ValueaddedtaxFromWikipedia，thefreeencyclopediAbstractAvalueaddedtax(VAT)isaformofconsumptiontax．Itisataxonthe”valueadded”toaproductormaterial，fromanaccountingview,ateachstageofitsmanufactureordistribution．The”valueadded”toaproductbyabusinessisthesalepricechargedtoitscustomer，minusthecostofmaterialsandothertaxableinputs．AVATislikeasalestaxinthatultimatelyonlytheendconsumeristaxed．Itdiffersfromthesalestaxinthat，withthelatter，thetaxiscollectedandremittedtothegovernmentonlyonce．atthepointofpurchasebytheendconsumer．WiththeVAT,collections，remittancestothegovernment，andcreditsfortaxesalreadypaidoccureachtimeabusinessinthesupplychainpurchasesproductsfromanotherbusiness.Thereasonbusinessesenduppayingnotaxisthatatthetimetheyselltheproduct，theyreceiveacreditforallthetaxtheyhavepaidtosuppliers．Personalend-consumersofproductsandservicescannotrecoverVATonpurchases，butbusinessesareabletorecoverVAT(inputtax)ontheproductsandservicesthattheybuyinordertoproducefurthergoodsorservicesthatwillbesoldtoyetanotherbusinessinthesupplychainordirectlytoafinalconsumer．Inthisway,thetotaltaxleviedateachstageintheeconomicchainofsupplyisaconstantfractionofthevalueaddedbyabusinesstoitsproducts，andmostofthecostofcollectingthetaxisbornebybusiness，ratherthanbythestate．ValueAddedTaxeswereintroducedinpartbecausetheycreatestrongerincentivestocollectthanasalestaxdoes．Bothtypesofconsumptiontaxcreateanincentivebyendconsumerstoavoidorevadethetax．Butthesalestaxoffersthebuyeramechanismtoavoidorevadethetax--persuadethesellerthatheisnotreallyanendconsumer，andthereforethesellerisnotlegallyrequiredtocollectit．Theburdenofdeterminingwhetherthebuyer’Smotivationistoconsumeorre-sellisontheseller．butthesellerhasnodirecteconomicincentivetothesellertocollectit．TheVATapproachgivessellersadirectfinancialstakeincollectingthetax，andeliminatestheproblematicdecisionbytheselleraboutwhetherthebuyerisorisnotanendconsumer．ChapterIComparisonwithasalestaxValueaddedtax(VAT)avoidsthecascadeeffectofsalestaxbytaxingonlythevalueaddeda