What are Exempt Supplies - what effect does it have on VAT?
Exempt Supplies mean a supply of goods or services which are supplies not subject to VAT under the VAT Act.
The reason for the exemption is that it is applied to achieve specific objectives for government. Sometimes services are just difficult to tax or taxing it can lead to hardship and thus exemption will be used for these.
An entity that is considered exempt will thus not be seen as an activity that is producing "taxable supplies" in the furtherance of an enterprise.
Frequently asked questions
Which entities are exempt from VAT Value Added Tax
Supplies that constitute exempt supplies are:
- Supply of residential accommodation
- Certain forms of local passenger transport
- Certain Educational Services
- Childcare Services
- Financial Services
What is the difference between zero rate and exempt vat
Zero rated supplied are still taxable supplies whereas Exempt supplies are not taxable supplies and this is where the major difference lies.
Zero rate of 0% VAT means no output tax payable however you can claim an input tax deduction and qualify for refunds on all your inputs which will be offset against you standard rated tax payable.
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