The difference between a VAT and a conventional sales tax is that a VAT is charged to every business as a fraction of the price of each taxable sale they make, but they are reimbursed VAT paid on their purchases, so the tax is actually applied only to the value added at each stage of production. Sales taxes are applied to the total price at each stage of production, essentially becoming very high tax rates on products with many production stages.

The concept of VAT was invented because high sales taxes and tariffs encourage cheating and smuggling.