VAT vs Sales Tax
VAT (value added tax) is supposed to reduce fraud (specifically, non-payment) although clearly it has problems of its own. To answer Kain Preacher, the problem with sales tax, which is only charged to the end purchaser, is that it is easily exploited. One way is for the retailer to simply say, "pay me in cash and we'll forget about the tax".
VAT is supposed to help discourage this by spreading the tax liability down the whole chain, from customer to retailer to wholesaler to manufacturer, the idea being that a customer might be willing to pay cash when he buys a single item but the retailer is less likely to be willing (or able) to pay cash to a wholesaler for an entire consignment of goods, and the wholesaler is even less likely to be able to pay cash to the manufacturer. Thus they are more or less forced to pay by trackable means (electronic, cheque, etc) which can be inspected by HM Revenue. The amount of tax ultimately received by HM is the same, but it is spread out across the chain. This is why it is called Value Added Tax. Each person in the buyer-seller chain pays the full tax rate over to HM when he sells the item on, but claims back from HM the full tax rate of the cost of the item; the difference between what he pays and what he claims back is effectively the 17.5% tax rate on his profit margin. In the end all the payments and reclaims partially offset each other and HM is left holding 17.5% of the final retail price, having received little portions of it from each of the people along the chain.
That's how it's supposed to work to stop tax avoidance at the point of sale. It doesn't eliminate it, just reduces the impact. And as we have seen, some people have figured out how to exploit the complexity of the payment/reclaim mechanism to basically claim back from HM money that wasn't due to them.