A value added tax (VAT) is a broad-based consumption tax. It is a tax levied at all levels of production on the difference between a business’s sales of goods and services to consumers or other businesses and its purchases of goods and services. Thus, businesses pay tax on the value they add to the goods and services they purchase from other businesses. All types of businesses, not just retail businesses, are subject to the tax, and sales to both consumers and other businesses are taxable.