Yes, it is a tax on spending done by normal people, but for VAT registered businesses it really is a value added tax. For example, let's say you buy a widget for $1000 + 20%vat = $1200, you record you spent $1000k of your money and you "earned" a $200 vat credit(you actually paid $1200, but the government "kinda owes you $200"). Then by the magic of your sales technique you sell the same widget for $2000(+20% vat). You get paid $2400. $400 of this is VAT, you take back your $200 and you pay the remaining $200 to the tax man at the end of the month/quarter. Therefore you really paid 20% on the value added ($1000). Your client, if not VAT registered paid 20% on the entire value.

I'm aware of this (although thanks for taking the time to make a succinct explanation).

Thing is, I am not operating a business; as a consumer I just see that I am being charged a significant premium on the money I spend (and a smaller but non-trivial one on the cost of VAT administration up and down the chain). It's not clear to me why 'value added' needs to be taxed in the first place, as opposed to business profits or dividends.

>It's not clear to me why 'value added' needs to be taxed in the first place, as opposed to business profits or dividends.

I don't have a firm opinion either way, but I noticed few things that work in favour of VAT in minds of lawmakers.

First, the budgetary income from VAT is huge(a lot more than all other taxes combined) . I remember when my country established VAT for the first time. The budget went from around 33bln a year before to 83bln 2 years after. Also such increase in income made even more money available as foreign loans. This makes me think 90% of infrastructure built in last 30 years would probably not happen without it(there was a lot built, a big chunk was financed with EU subsidies, but local funds of some 20%~50% were required and of course having VAT was a condition of EU's membership).

Second. Lawmakers see VAT as something companies can't scam so easily (despite there being huge frauds in many countries). For example with income tax there is always an option to inflate expenses to minimize profits on paper. With dividends, a business doesn't have to pay them, benefits can be given in many different ways each requiring it's own detailed water tight description in relevant laws. Special measures for R&D are granted, special tax zones for disadvantaged areas etc. . Vat is seen as complex, but tax on business income is IMO a lot more complex. Still most countries have both business income and company dividend taxes.

Finally. If it is true as it appears that consumers pay the bulk of vat. This tax can be used to shape consumption. For example here we have 0% vat rate on children clothes, 3% on some food items, 8% on building materials if you're building a home for yourself, but 23% for developers. Anything that gives more control to lawmakers will be seen as favorable.

So in summary, does VAT need to be in place? I don't know, but I can definitely see a lot of forces pushing to keep it in place for the above reasons.

Because as a society we found that a government is the (as of know) the best way to manage us. To fund this system we give power to government to levy taxes.

One of those taxes is a tax on the value a business add to good and services, another is on the product of your labour, etc.

Now, you are arguing on a different system where this tax is not to your liking. This is a political choice and up to you to vote and promote other sources of government revenue.