France was the first country to adopt a nationwide value-added tax, introducing it in 1954.
The tax was developed by French tax official Maurice Lauré and initially applied to larger businesses. Unlike a simple retail sales tax, VAT is collected in stages as value is added during production and distribution. Businesses generally charge VAT on sales and deduct the VAT they paid on eligible purchases, leaving the final burden with the consumer.
VAT became an important tool in international trade because exports are commonly zero-rated, while imports are taxed comparably to domestically produced goods. This destination-based design aims to avoid placing domestic consumption taxes on exports while preserving tax treatment at the point of consumption.
France’s system helped inspire adoption elsewhere, particularly in Europe. The European Economic Community later encouraged members to harmonize VAT systems. VAT is now used by more than 170 countries, although the exact rates, exemptions, and administration differ widely.