Value-added tax (VAT) is a widely used tax system that taxes the value added to goods and services at every stage of production or distribution. As opposed to a sales tax that is only charged at the point of sale to the end customer, VAT is applied at each step in the supply chain. Businesses collect VAT on behalf of the government and can reclaim any VAT paid on their purchases. This system is designed to avoid the cascading effect of tax-on-tax that can arise under traditional sales tax systems, thus ensuring that all parts of the economic chain contribute fairly to tax revenue.