The process of levy of certain charges by an authority on any kind of income held by goods, services and transaction is known as taxation. As far as goods and services are concerned, various types of taxes are applicable at different stages, one of which is VAT.
VAT is a type of indirect tax which is levied on consumers on the sale of goods and services, and at the time of sales. VAT plays a huge role in the GDP of the economy.
Now, the question arises why is it an indirect tax? It is because the government imposes tax on the sales and hence it needs to be levied on consumer i.e. the end users of the products and services. But since the government collects it from the sellers/ producers, the collection of tax moves from consumers to producers and ultimately to government. Hence it is an indirect tax.
It is also a multistage tax where the tax is levied at each step of production of goods that involve sale/ purchase. VAT is levied on local as well as imported goods.
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