Internationally, the VAT is the most common tax and represents the largest source of the governments’ tax revenues. It is the preferred basis for an efficient and sustainable tax on consumption.

The continuing upward drift in the share of taxes in state revenues suggests there may be a strong tendency for government to grow. The VAT programme is expected to ease the burden of double taxation in addition to other advantages of indirect taxes such as easier mechanism of calculation and collection.

Value Added Tax (VAT) is a multi-point Sales Tax system where the tax is levied as a proportion of value added (i.e. sales minus purchases). It is a consumption tax charged at every step of the value chain or, better put, at each transaction in the production-distribution system unlike previous Sales Tax system’s concept of taxation at first/ last point. It is a consumption tax because it is borne ultimately by final consumer. It is not a charge as a percentage of price, which means that the actual tax burden is visible at each stage in the production and distribution chain.

It is a multi-stage tax, levied only on value added at each stage in the chain of production of goods and services with provision of a set-off for the tax paid at earlier stages in the chain. VAT would, therefore, be collected in stages (instalments) from one stage to another. 
These stages can be import, manufacturing, wholesale and retail.

Although VAT is eventually borne by the final consumer, it is collected at each stage of production and distribution chain.  Some of the merits of VAT are as follows:

VAT minimises tax evasion due to its catch-up effect; it is simple to administer as compared to other indirect taxes; it is transparent and has minimum burden to consumers as it is collected in small fragments at various stages of production and distribution; incidents of smuggling seem to be fairly limited in relation to the VAT; more tax flows into the Budget and greater tax neutrality is provided for and tax avoidance is reduced. VAT also allows for some degree of flexibility in the implementation procedures. It affects the public patterns of consumption and investment behaviour over time, and gives local exporters a significant advantage due to the zero-rate VAT on exports.  It helps promoting greater tax justice and equity in general.

In principle, VAT taxpayers are natural or legal persons carrying out economic activity, i.e. supply, export or import goods that are subject to licensing and/or quotas. VAT is applicable to any importer, producer, seller or provider of services who forms the first link in the chain. As for the manufactured or imported goods, the added value will move along the distribution chain to be ultimately paid by final consumers.