[Daithi]

It was my understanding that VAT applied to every purchase. I could definately be wrong and would value the clarification, but here is how I was told VAT works --

A farmer sells food, but he needs to buy fertalizer, water, pesticides, etc. to produce that food, and he is required to pay VAT on all these purchases. Then a Food Distrubutor purchases the farmer's food and the distributor needs to pay VAT for that food, as well as VAT for the trucks he purchased to pickup and distribute the food. Then grocery stores buy the food from the Food Distributor and they too pay VAT. Then consumers buy the food and once again pay VAT. At every level that value is added to an item then a tax is incured, thus Value Added Tax. Furthermore, the tax paid is on the added value and not on the gross cost of the item. A sales tax on the other hand is only charged on the gross price of the final sale to consumers, and when businesses are charged a sales tax it can be deducted when they file their taxes.