A value added tax (VAT) can be explained as a type of consumption tax. From the buyer’s perspective, it is a tax on the purchase price. On the other hand, from a seller’s perspective, it is a tax levied on the “value added” to a product or service. The difference between these two amounts is remitted to the government by te manufacturer and the rest is retained by him to compensate the taxed which have been paid previously on the inputs.