Value Added Tax, or VAT, is a type of indirect tax that is applied to the sale of goods and services. It is collected at each stage of the production and distribution process, meaning that businesses pay VAT on their purchases and charge VAT on their sales. The difference between the two amounts is then paid to the government. VAT is commonly used in many countries around the world, including those in the European Union. The rate of VAT can vary by country and sometimes by the type of goods or services. It is designed to be a transparent tax, as consumers can see the VAT amount included in their purchase price.