What is the primary difference between VAT and customs duty?

The correct choice highlights that VAT (Value Added Tax) is fundamentally a tax levied on the value added to goods and services at each stage of production or distribution. This means that VAT is charged incrementally based on the increase in value that occurs at each stage of the supply chain, from the manufacturer to the final consumer. The purpose of VAT is to tax consumption rather than production, ensuring that tax is applied at the point of sale to the end consumer.

Customs duty, on the other hand, is a tariff or tax imposed on goods when they are transported across international borders. It is typically based on the value of the goods, the weight, or the quantity, and is primarily aimed at protecting domestic industries and regulating foreign trade.

In contrast to the other choices, this option accurately captures the essence of what VAT is, distinguishing it from customs duty, which serves a different purpose in the taxation system. For example, the assertion that VAT is fixed is misleading, as VAT rates can vary by country or by the type of goods and services in question. Saying that customs duty applies exclusively to services is incorrect, as customs duties apply to goods, not services. Lastly, the claim that VAT is only applicable within the EU is false; VAT is