What are the consequences of VAT?

Value Added Tax (VAT) can lead to increased prices for consumers, as businesses often pass on the tax costs. It can also create a more transparent tax system, as it is collected at each stage of production and distribution, promoting compliance. However, VAT can disproportionately affect lower-income households, as they spend a larger proportion of their income on goods and services subject to the tax. Additionally, the administrative burden on businesses can increase, particularly for small enterprises.