Value added tax (VAT) is a tax levied on the value added which results after each exchange of the goods. It differs from the Sales tax as in the Sales tax, tax is levied on the total value of the exchange of goods. Thus, if you sell an article worth 100 $, tax is collected on 100 $. Now, if the buyer again sells the article for 110 $, tax is collected on 110 $. On the other hand, if the rate applicable is VAT, the tax is collected on 10 $ only, that is the additional value added.

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