vat and sales tax difference

The difference between VAT (Value-Added Tax) and sales tax lies in their structure and application. Sales tax is a single-stage tax applied only at the point of sale to the end consumer, where the retailer collects the tax and remits it to the government. In contrast, VAT is a multi-stage tax applied at each stage of the production and distribution process, with businesses claiming back the VAT they’ve paid on their purchases. VAT is widely used globally, especially in Europe, while sales tax is more commonly found in the United States. Understanding these key differences is essential for businesses operating in different tax environments.