What Is The Difference Between Exempt And Zero-Rated for VAT?

By Tevait Feanle •  Updated: 01/23/24 •  5 min read

While the basics of VAT in South Africa are reasonably simple, a lot of confusion arises around the idea of VAT-exempt and zero-rated goods. However, it is critically important to understand what each of these two distinctly separate categories means, and how it will impact your business if you operate with either. 

Exempt Vs Zero Rated: Some Basics

While these two classes of goods and services seem very similar at first glance, they are handled very differently under VAT legislation, and knowing which category you fall into will impact whether or not you can even register as a VAT vendor, what you can charge the end consumer, and whether or not you can claim any portion of your VAT expenditure back from SARS.

Of course, some businesses offer VAT-exempt or zero-rated goods and services alongside those that attract standard VAT. In these cases, you will be required to handle these items differently from the VAT-taxable items you produce when you file your VAT returns.

Which Items Are Exempt From VAT?

Always remember that zero-rated and exempt from VAT do not mean the same thing. Goods and services that fall under the VAT-exempt category in South Africa are those on which VAT is not charged at all. This means that the selling price of these items does not include any VAT, and businesses engaged in the sale of exempt items are not allowed to claim input VAT credits on their purchases. Common examples of items that are exempt from VAT are:

The critical thing to understand about businesses that deal in goods or services that are fully exempt from VAT is that they cannot register as VAT vendors at all, and can claim no input VAT from their supply chain.

What Are Zero-Rated Items?

In contrast, zero-rated items have VAT applied, but at the rate of 0%. Zero-rated items in South Africa include nineteen basic food items most used by the poor. They also include illuminating paraffin and fuels which are already subject to the fuel levy, international transport services, and some basic types of medication. Additionally, government grants, the sale of going concerns, and some farming inputs are zero-rated.

Unlike VAT-exempt businesses, services, and goods, those making zero-rated goods can still claim their input VAT and are required to be VAT-registered if they have met the taxable turnover threshold.

How Are Zero-Rated And Exempt From VAT Similar?

While exempt and zero-rated items differ greatly in the wider VAT ecosystem, they do share certain similarities:

However, while the two types of goods and services do have some similarities, it is smart not to conflate them too much. They are handled differently under tax regulation, and it is important to understand those differences- far more so than their similarities!

What Is Taxable, Exempt, And Zero Rated?

Taxable items are those on which the standard rate of VAT is applied. The current standard rate in South Africa is 15%, and businesses selling taxable items charge this rate on their sales. Businesses with taxable transactions can claim input VAT credits on their purchases, offsetting the VAT they collect on sales.

Exempt items are not subject to VAT at all. While this benefits consumers by reducing the cost of certain goods and services, businesses dealing with exempt items are classed as outside the VAT system and cannot claim input or output VAT.

Zero-rated items are subject to a VAT rate of 0%. While consumers do not pay a separate VAT charge, businesses selling zero-rated items can claim input VAT credits on their purchases.

Can You Claim VAT If You Are VAT-Exempt?

No. If you are classed as a VAT-Exempt business, or solely produce VAT-exempt goods or services, you cannot register as a VAT vendor with SARS. This means you cannot claim input or output VAT expenditure and essentially operate as a non-VAT-qualifying entity, even if you technically meet the taxable turnover for VAT.

Hopefully, you now understand this tricky area of VAT legislation much better and feel confident handling both VAT-exempt and zero-rated goods. 

Keep Reading

What Is A VAT Reconciliation In South Africa?

What Is A VAT Reconciliation In South Africa?

How To Avoid Paying VAT As A Business

How To Avoid Paying VAT As A Business

How To Avoid Paying VAT As A Business. There is only one legal strategy to use to avoid paying VAT as a business in South Africa

Which Incomes Are Taxable Under PAYE And VAT

Which Incomes Are Taxable Under PAYE And VAT

This post will delve into the details to better understand which wages are subject to taxation under PAYE and VAT.

How to File a VAT Return

How to File a VAT Return

If you are a registered vendor and want to learn how to file a VAT return, we have you covered here. 

How Long Does It Take to Claim VAT Back?

How Long Does It Take to Claim VAT Back?

In this comprehensive guide, we'll explore the timeframes for claiming VAT refunds, how to check the status of your refund

What Is Reverse VAT in South Africa?

What Is Reverse VAT in South Africa?

However, as a newly-introduced concept, there is a lot of uncertainty surrounding it. Today we hope to clear up some of that confusion.

How To Check VAT Registration Status

How To Check VAT Registration Status

How To Check VAT Registration Status. Today, we look at some ways to check VAT registration status in South Africa.

What is Deemed VAT?

What is Deemed VAT?

What is Deemed VAT? Prepare yourself and immerse into the captivating realm of Value Added Tax (VAT).

What Is the Penalty For Late Filing Of VAT Return?

What Is the Penalty For Late Filing Of VAT Return?

This presentation will focus on the particulars of these penalties, shedding light on the potential repercussions of filing and paying a VAT return late

How To Get A VAT Statement Of Account

How To Get A VAT Statement Of Account

Today we look closer at how to get a VAT statement of account, alongside other account types, from SARS eFiling.

How To Apply For A VAT Certificate

How To Apply For A VAT Certificate

As your business grows and your turnover increases, you may want to apply to be VAT registered with SARS

What Are Zero-Rated VAT Items

What Are Zero-Rated VAT Items

Their handling for VAT purposes by the businesses that make them can be confusing, but we are here today to help explain zero-rated VAT items and how they are handled. 

How To Apply For A VAT Number In South Africa

How To Apply For A VAT Number In South Africa

If you wish to become VAT-registered with SARS as a South African business, you will need to apply for a VAT number.

What Is Output And Input VAT?

What Is Output And Input VAT?

This article is like a game guide, delving into the intricacies of Output VAT and Input VAT

What Businesses Are VAT-Exempt?

What Businesses Are VAT-Exempt?

What Businesses Are VAT-Exempt?. Today we will look deeper into all three cases, and how to know if they apply to you.