The Value-Added Tax (VAT) is a form of indirect taxation where the tax is incorporated into the price of goods and services. It has been used in many countries for decades, but it can be complicated to understand and implement correctly. This article will discuss the welfare effects of VAT reform and its implications for businesses and taxpayers.

First, let’s consider how VAT works. The use of this type of tax means that businesses are able to pass on their taxes to consumers in the form of higher prices for goods or services they sell. Businesses are able to deduct any inputs from their turnover which have already paid the tax so they only end up paying it on their final value-added product or service, rather than having to pay it twice over different stages during production or sale processes. As such, VAT is ultimately paid by consumers when they purchase products or services with taxable components attached to them.