When travelling in foreign countries, visitors often see prices listed with a small footnote that says, "inclusive of VAT". Understanding the term can often save travellers considerable money on large purchases upon exiting the country.
As goods and services are produced, a tax is added at each production stage based on the value at that time. The final product includes the summation of these individual taxes, which is known as the "value added tax", essentially a consumption tax paid by consumers.
"Inclusive of VAT" Definition
Prices posted by merchants usually include VAT, so unlike sales taxes common in the U.S. no tax is separately added at the purchase point. Purchase receipts often show what amount of the sale was due to the VAT.
Outside the U.S., most countries employ a value-added tax system. It varies by country, and also is known by other terms, like Australia's GST or "goods and services tax".
Benefits for Foreigners
Some countries refund a portion of the VAT to foreign visitors, and it can be substantial for large purchases. In order to get the rebate, visitors must complete a form and present receipt copies showing the tax paid, usually at the airport or point of exit.
Travel and entertainment VAT expenses are exempt from rebates. Additionally, sometimes receipts do not show the tax breakdown, but it can be calculated easily.
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