* TWt~~~fcy I52 THE VALUE ADDED TAX AND DEVELOPING COUNTRIES

value added tax (VAT) is a tax on the value that a business firm / adds to the things it buys from other firms in producing its i own product. Wheat is grown on a farm, then sold to a miller. A bakery buys flour from the miller and adds value to it by trans-forming it into bread. The bread is sold to a wholesaler, which adds further value to it by transporting it and storing it, before selling it to a retailer. The retailer adds still more value by making the bread available to the consumer in convenient form, storing it, and display-ing it on the retail shelves. The total value, or cost, of the bread to the consumer is the sum of all these additions in value. So a tax that strikes each of these values added sums up to the same thing as a tax levied simply on the final sales value (exceptions to this will be noted below). A VAT is comprehensive if it covers all economic activity from the earliest stage of farming or mining right through to the retailer. In some countries, the VAT does not extend through the retail stage. Let us term this the restricted, or "preretail, " VAT. This article refers to the comprehensive type of VAT, unless otherwise noted. The speed with which the value added tax has spread around the world is unmatched by that of any other tax in modern times. Thirty years ago there was no comprehensive VAT anywhere. Two countries, Brazil and France, had been experimenting with a restricted VAT. Today, the comprehensive V.AT is found in some forty countries, most of them in Europe and Latin America. The restricted form of VAT is used by twenty more countries, chiefly in Africa. In 1988 value added tax is scheduled to be introduced, apparently in comprehensive form, in two such disparate economies as Hungary and Tunisia. ' However