Business, Legal & Accounting Glossary
Goods and services that are taxable for value added tax (VAT) purposes but are currently subject to a tax rate of zero.
Refers to goods and services that are taxable for value added tax purposes but are currently subject to a zero percent tax rate.
These differs from exempt in that the VAT attributable is allowable for input tax credit.
Zero-rated goods and services are goods and services that are taxable for value-added tax purposes but are currently subject to a tax rate of zero.
In nations that employ value-added tax (VAT), zero-rated goods are products that are free from said taxation.
These differ from exempt status in that the VAT attributable is allowable for input tax credit.
In most nations, the government requires products and services to be subject to domestic VAT. The VAT is included in most reported data as part of the total price of things sold in a country, and it is a charge added to sales tax in most transactions. Value Added Tax (VAT) is a type of consumption tax.
Certain commodities are designated as zero-rated goods in countries that use VAT. Zero-rated things are usually one-of-a-kind items. These products are designated as zero-rated by countries because they are major contributors to other manufactured commodities and are an integral part of a larger supply chain. In addition, several food items are designated as zero-rated commodities and are sold with no VAT.
Certain foods and beverages, exported goods, donated goods sold by charity stores, disabled equipment, prescription medications, water and sewage services, books and other printed publications, and children’s apparel are all examples of commodities that may be zero-rated.
Buyers frequently employ zero-rated commodities in their manufacturing processes, allowing them to pay a lower price for the goods without the tax. A food maker may use zero-rated commodities in the production of a food product, yet the finished product includes VAT when purchased by the consumer.
In general, the lack of VAT on zero-rated goods results in a reduced overall purchase price. Buyers can save a lot of money by purchasing zero-rated items. In the United Kingdom, for example, the ordinary VAT rate on most goods is 20%, whereas the reduced rate is only 5%.
When a consumer transports a product from one country to another, whether on their own or as part of a shipment, there is usually an international VAT fee in addition to any import or export tariffs that must be paid. Because zero-rated items are not subject to international VAT, the cost of importing or exporting them is reduced.
Some goods and services are also declared to be VAT-free. These excluded items and services are usually a small subset of those offered by a VAT-free seller.
Finance and insurance services, as well as some land construction materials, are exempted by the European Commission. Exempt items also include those that serve the public good, such as medical and dental care, social assistance, and education.
Frequently, zero-rated goods and services are those that are deemed vital, such as food, hygiene products, and animal feeds. The elimination of these items makes them more affordable to low-income consumers.
For example, in 2018, an independent panel from South Africa’s University of Stellenbosch recommended that certain foods be added to the country’s list of zero-rated food items. Among the items were white bread, cake flour, bread flour, baby and adult diapers, sanitary supplies, and school uniforms.
The advice came on the heels of a VAT rate rise in South Africa from 14% to 15%, which was opposed by many, who saw it as hurtful to lower-income households. The impartial group was appointed by the country’s finance minister at the time, Nhlanhla Nene, and was led by professor Ingrid Woolard, who teaches economics at the University of Stellenbosch.
Brown bread, fruits, vegetables, dry beans, rice, lentils, maize meal, milk, eggs, fish, mealie rice, and vegetable oil are among the 19 zero-rated foods recommended by the panel.
Examples of Zero-rated supplies include:
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Definitions for Zero-Rated Goods And Services are sourced/syndicated and enhanced from:
This glossary post was last updated: 7th January, 2022 | 454 Views.