VAT (Value Added Tax)
A consumption tax added to the price of most goods and services, ultimately paid by the end consumer.
VAT is charged at each stage of production and distribution but is effectively borne by the final buyer, who sees it included in the shelf price. Rates vary by country and sometimes by product, with essentials like food often taxed at lower rates. For households, VAT is a hidden but significant slice of everyday spending, baked into nearly every purchase. Businesses collect it on sales and reclaim it on purchases, passing the net to the tax authority. Being aware of VAT helps you understand why prices and inflation move the way they do.
Example
A product priced at $100 before a 21% VAT costs $121 at the till; the extra $21 goes to the state, not the retailer.
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Inflation
The rate at which the general price level of goods and services rises over time, reducing the purchasing power of money.
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The amount of income or value on which tax is calculated, after deductions but before credits.
Tax Credit / Allowance
An amount subtracted directly from the tax you owe, reducing your bill euro for euro.
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Tax Return
An annual filing that reports your income and deductions to calculate the tax you owe or are refunded.
Tax Deduction
An expense subtracted from your taxable income, lowering the amount of income that gets taxed.