I was tempted to make the title, “What is a VAT tax” but that would be redundant.
Brett Bartlett explains it pretty succinctly in 2 minutes on The Daily Beast.
Unlike the sales taxes we’re familiar with where all the tax is collected at the checkout counter, the VAT is embedded in the prices of the inputs that go into the final product. So for example, the farmer pays the tax when he grows the wheat. The Miller pays the tax again when he turns the wheat into flower. And then the baker pays the tax again when he turns it into bread. And at each stage the producers get a credit for the taxes that are previously paid. So at the end of the day there’s only one tax rate no matter how long the production process is. The main benefit of this is it avoid evasion.
Bartlett is a supply-side economist, former advisor to Reagan, and and the author of The Benefit and The Burden: Tax Reform-Why We Need It and What It Will Take (2012) and Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy.