VAT Tax

A VAT tax, or Value Added Tax, is a broad tax that is placed onto nearly every good and service. This tax is different from a sales tax in that a sales tax is ordinarily charged in one lump at the end of a sale, where as the VAT tax is paid incrementally through the manufacturing process then paid by the consumer when you buy the product.

The advantage to this tax is that it generally self scales to income, assuming that a person who makes more money, spends more money, but the disadvantage that is often argued is that it takes a larger percentage of the income from the impoverished tax payers as opposed to the more wealthy tax payers.

Slightly more in-depth:
The way the VAT tax is generally assessed is a step by step process. Suppose that you assemble and sell flashlights to a large retailer. For your flashlights you need a body, a switch, a battery connector, and a light bulb.

You purchase each of these items but instead of just paying for these items, you also pay a 10% VAT tax on them as well (minus any taxes already paid). Then you assemble your flashlights and sell them to the large retailer, again, charging the 10% tax, then the retailer in-turn sells those flashlights at their price, plus the 10% tax. So throughout this whole process, the tax was added up and added up, rather than assessed in one lump sum at the end of the chain.