The determination of the tax levied on the increment of value at each stage of production and distribution is a crucial financial process. For example, a business adds value to raw materials through manufacturing, and the tax is calculated only on this added value, not the total selling price. This ensures that the tax is only paid on the actual economic activity.
Accurate computation of this tax is vital for business compliance and economic stability. Historically, its implementation has aimed to streamline tax collection and reduce the cascading effect of sales taxes. Its correct calculation contributes to transparent financial reporting and helps businesses manage their cash flow effectively, promoting fair competition.