Value Added Tax (VAT) is a type of indirect tax that is applied to the sale of goods and services at each stage of production or distribution. It is collected by businesses on behalf of the government and is based on the value added to a product at each stage. This means that consumers ultimately pay the tax when they purchase the final product. VAT is commonly used in many countries around the world, including those in the European Union and Canada. The rate of VAT can vary by country and sometimes by the type of goods or services, with essential items often taxed at a lower rate.