What are the various rates of VAT?
Value Added Tax, or VAT as it is commonly known, is a type of tax that is levied on various goods and services. VAT is levied upon a product at every stage of its production process (also known as the supply chain). Registered business owners, rather than the government, collect VAT from the consumers. This makes VAT a type of indirect tax.
There are three types of VAT rates:
Standard Rate: This is the basic rate of 5% that is applied to all taxable goods and services unless they are zero-rated or tax exempt. Registered business owners can claim the tax that has been paid for these goods and services.
Zero Rate: The Zero Rate is levied for goods and services that fall into the category of basic requirements, such as general healthcare, medical supplies, education, and basic food items. Consumers do not have to pay any tax on goods that are zero-rated. Business owners who paid VAT on these goods or services at an earlier stage of supply can claim the input VAT paid when they file for returns.
Tax Exempt: Tax exempt goods and services include financial services and the sale or lease of real estate. The customer does not have to pay any VAT on such goods and services.
There is a difference between tax exempt and zero-rated goods. In the case of zero-rated goods, business owners can claim the amount of tax that went into the production of the good. Business owners cannot claim any tax incurred during the production of tax exempt goods.