Zero-Rated Goods

Published Oct 26, 2023

Definition of Zero-Rated Goods

Zero-rated goods refer to goods that are exempt from Value Added Tax (VAT) or Goods and Services Tax (GST), meaning no tax is added to the selling price. While the goods are still subject to the tax, the rate is set at zero percent. This is different from exempt goods, which are not subject to the tax at all.

Example

An example of a zero-rated good is basic food items such as bread, milk, fruits, and vegetables. These everyday food products are considered essential for individuals and families, so governments may choose to exempt them from taxes or apply a zero percent tax rate to ensure they remain affordable and accessible to everyone, especially those with lower incomes.

By applying a zero percent tax rate, the government ensures that the price of these essential food items does not increase due to additional taxes. This helps to alleviate the financial burden on consumers, particularly those in vulnerable situations, and promotes the affordability of basic necessities.

Why Zero-Rated Goods Matter

The implementation of zero-rated goods is a policy tool used by governments to support social welfare and mitigate the potential negative impact of taxes on essential goods. By exempting or applying a zero tax rate to certain items, governments aim to ensure that these goods are affordable for everyone, regardless of income level.

Zero-rated goods play a crucial role in reducing the cost of living and addressing issues of food security, especially for low-income households. They help to ensure that individuals and families can have access to basic necessities without bearing the burden of additional taxes.

Additionally, zero-rated goods can also be beneficial in stimulating consumer spending and boosting economic growth. By reducing the cost of essential goods, individuals may have more disposable income to spend on other goods and services, thereby supporting local businesses and overall economic activity.