What is a Value Added Tax?

Taxes that can be reclaimed from the tax authority is called a value added tax.

For example, if you sell items worth $200 at 5% value added tax, you collect $10 as taxes from your customer.

Similarly, if you purchase items for $100 at 5% value added tax, you have to pay $5. Since this tax is reclaimable, you can claim $5 ($10-$5) on these transactions.