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Value-added tax is

  • A.Tax on final consumption collected at the consumption stage
  • B.An ad-valorem tax on final consumption collected at the manufacturing level
  • C.A special tax levied by states on products from other states
  • D.An ad-valorem tax on domestic final consumption collected at all stages between production and the point of final sale

Answer: D

It is an ad valorem tax on domestic final consumption, collected at every stage of production and distribution.

Each seller pays tax on his sales and takes credit for the tax on his purchases, so the levy falls only on the value he has added. The cascading of tax upon tax is thereby avoided, and the whole burden rests on final consumption.

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