Exempt vs. Zero Rated (VAT)

VAT is the value added tax that is levied on the sale of goods and services. The price of these goods and services includes the value of VAT. There are different types of VAT rates that apply to different types of goods and services. There are also certain goods and services in which VAT cannot be charged. Retailers of goods and services need to know what tax rates apply to different goods and services so that the right amount of tax can be collected and recovered. The article provides a clear explanation on the different types of goods and services, the tax rates that apply and show the main similarities and differences between zero classified products and exempt goods.

Zero Rated

Products with a zero value are products for which value added tax (VAT) is not imposed. Products with a zero rating may include certain food items, medical equipment, trading pure gold, silver and platinum, trading authentic gems and pearls, trading preschool education services and products, etc. Resellers who sell zero-rate merchandise can recover VAT on costs incurred in any purchases that are directly related to sales of zero-rated products. When the reseller fills the VAT returns, they can claim the input tax credits to recover the VAT they paid or owe to the business.

Exempt

Exempt products are also non-VAT goods. Since exempt products do not charge VAT, a supplier providing exempt products cannot claim VAT on purchases related to exempt products. Examples of exempt products include insurance, certain types of training and education, certain services offered by doctors and dentists, postal services, physical education, works of art, cultural services, etc. In case the reseller only provides exempt goods or services, they cannot register for VAT or charge VAT, which means that there is no VAT to be claimed back. If resellers sell some exempt goods and some taxable goods, they will be known as “partially exempt”; in which case the dealer may claim VAT on the taxable goods and services sold.

What is the difference Zero Rated and Exempt?

Zero Rated and exempted goods and products are similar to each other in that both do not charge VAT on goods and services sold. The main difference between the two is not from the buyer’s perspective; is more from the seller’s point of view. Resellers who sell zero-rated products may claim VAT on any purchases that are directly related to the sale of zero-rate goods. On the other hand, exempt product resellers cannot claim VAT on purchases related to exempt products.

Summary:

 

Zero Rated vs Exempt

• VAT is the value added tax that is levied on the sale of goods and services. The price of these goods and services includes the value of VAT. There are different types of VAT rates that apply to different types of goods and services.
• Zero prices of goods and exempt products are similar to each other, since both do not charge VAT on goods and services sold.
• Resellers who sell zero-rate goods can claim VAT on any purchases that are directly related to the sale of zero-rate goods. On the other hand, exempt product resellers cannot claim VAT on purchases related to exempt products.