Like the VAT in Europe, the Canadian VAT is a general, broadly
based consumption tax imposed on the value added to most goods and
services. Canadian VAT generally does not apply to goods that are
sold for export or services which are sold to customers outside
Canada.
Canadian VAT is a consumption tax because it is borne by the
final consumer. It is not intended to be a cost for most
businesses. Canadian VAT is charged at each stage in the production
and distribution chain, unlike US-style sales taxes that apply only
on retail sales, including on retail sales to other businesses.
Canadian VAT payable on inputs is recoverable by businesses through
the chain as an input tax credit which can be applied against the
VAT collectible on the sales. Therefore, like for European VAT,
Canadian VAT is neutral throughout the chain. There are no
"cascading" taxes embedded in the goods or services sold
to the ultimate consumer in the Canadian VAT regime.
