Short answers, pulled from the story.
Maurice Laure, joint director of the French tax authority, implemented the first modern VAT on the 10th of April 1954 in France's Ivory Coast colony. France adopted the system domestically in 1958. The underlying concept was proposed earlier by German industrialist Georg Wilhelm von Siemens in 1918.
As of January 2025, 175 of the 193 countries with UN membership employ a VAT. This includes all OECD members except the United States. VAT raises approximately one fifth of total tax revenues worldwide.
VAT is collected at every stage of production and distribution, with each seller paying tax on the value they add and claiming a credit for tax already paid upstream. A sales tax is collected only at the final sale to the consumer. Both systems result in the same total amount paid by the consumer, but VAT creates a paper trail at every stage that makes evasion harder.
Under VAT, every transaction in the supply chain is reported to the government through tax submissions or reimbursement claims. Because each participant in the chain knows the others will file claims, any gap in reporting is likely to draw scrutiny from authorities. Even if a retailer evades charging the consumer, the government has already collected tax at prior stages.
VAT is criticized as regressive because lower-income households spend a higher proportion of their income on consumption, handing over a larger share of earnings to VAT relative to wealthier individuals. However, an OECD study found that VAT could be slightly progressive in some contexts. Countries often reduce the effective burden on poorer households by applying lower rates to everyday goods or using transfer payments.
Carousel fraud exploits the VAT credit and refund mechanism, allowing participants to claim refunds on tax that was never actually paid. It originated in the Benelux countries in the 1970s and later became a major problem in the United Kingdom. VAT overclaim fraud in Romania reached as high as 34 percent.