Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Zero-Rated Goods

What it is:

Zero-rated goods are goods that aren't subject to value-added (VAT) tax.

How it works (Example):

A value added tax (VAT) is a consumption tax added to a product's sales price. It represents a tax on the "value added" to the product throughout its production process.

The VAT system is invoice-based. Each seller in the product chain includes a VAT charge on the buyer's invoice. Under a VAT taxation system, all sellers collect the tax and then pay it to the government. The VAT gives sellers along the supply chain a direct economic motivation to collect the tax, thereby reducing the incidence of tax evasion.

Food, medicine, water, certain services, and clothing are often zero-rated goods. However, VAT taxes are usually part of the price of a good (as opposed to a sales tax, which is added to the price of a good), so some consumers may not be aware of which products are zero-rated.

Why it Matters:

The VAT is a highly efficient flat consumption tax that reduces the incidence of non-compliance. More than 100 countries have adopted it -- with rates ranging from 10% - 25%. Accordingly, buying zero-rated goods can save consumers a large amount of money.