France introduced the first modern value-added tax in 1954.
The tax was developed by French economist Maurice Lauré, who worked for France’s tax authority. It was initially applied to businesses rather than directly to all consumers, and it taxed the value added at each stage of production and distribution.
A value-added tax, or VAT, is collected incrementally. Businesses generally charge VAT on sales and reclaim VAT paid on eligible purchases, so the final burden rests mainly with the consumer. This staged collection helps create an audit trail through the supply chain.
France’s experiment became a model for many other countries. VAT spread widely in Europe after the creation of the European Economic Community, and it is now used in much of the world. The United States remains a notable large economy without a federal VAT, although it uses other consumption taxes.