Zero-rated vs exempt supplies

We have had VAT in Namibia since November 2000 but many people still get confused between zero-rated VAT transactions and VAT-exempt transactions.

One of the basic principles of VAT is that the person selling the goods or providing the service will determine what rate of VAT to apply to such a transaction. With the exception of a few transactions, the seller of the goods or services should not really be interested in the identity or nature of purchaser.Someone who is registered for VAT should simply as a first alternative always raise VAT on a sale of goods or services unless there are clear indications that the zero-rate of VAT may apply.A seller of goods or services can make two types of supplies – taxable supplies or exempt supplies.Taxable supplies can be standard-rated (at 15 per cent currently) or zero-rated.Exempt supplies are simply not subject to VAT as opposed to zero-rated supplies, where there is VAT but the VAT is zero.There is a fine but very important distinction between the two.The distinction between the two types of supplies lies in the entitlement you have to claim the VAT that you have paid to your suppliers.If you make taxable supplies, you are entitled to claim all allowable VAT paid to suppliers and on import in respect of the goods or services that you sell.So, even if you raise VAT at zero per cent, you are still entitled to claim input VAT.The reason for this is that you have raised VAT on your supplies albeit that the rate charged was zero.The VAT Act contains the prescribed zero-rated supplies in Schedule III to the Act.The most common zero-rated supplies are the export of goods (where the seller consigns and delivers at an address in another country), international transport transactions, selling petrol and diesel for everyday use, selling maize meal, selling livestock and the supply of land or buildings for residential purposes.If you make exempt supplies, you cannot register for VAT.Accordingly, you don’t even stand a chance to claim any VAT paid to suppliers back from the Receiver of Revenue.The VAT paid to suppliers will be a cost to you and there is no chance to get a VAT refund from the Receiver.The only concession here is that you can deduct this VAT for income tax purposes to determine your taxable income.The VAT Act contains the prescribed exempt supplies in Schedule IV to the Act.The most common exempt supplies are long-term residential rentals (i.e.excluding hotels and B&B’s), medical services, public transport services and educational services.VAT charged to these organisations forms part of the cost of operating such an organisation because it cannot be claimed back from the Receiver of Revenue.The services we render as employees to our employer are deemed not be supplies and therefore we cannot register for VAT in respect of the services we render as employees.This puts us into the same position as an enterprise that makes exempt supplies.We simply cannot claim back the VAT that we pay when we buy any good or service.Being zero-rated for VAT is very cool – unfortunately all of us can’t make zero-rated supplies.Being exempt from VAT is not very cool – all persons not VAT-registered fall into this category but this is how the Receiver gets his money! Should readers have queries, they are invited to send them to cameron.kotze@za.ey.comWith the exception of a few transactions, the seller of the goods or services should not really be interested in the identity or nature of purchaser.Someone who is registered for VAT should simply as a first alternative always raise VAT on a sale of goods or services unless there are clear indications that the zero-rate of VAT may apply.A seller of goods or services can make two types of supplies – taxable supplies or exempt supplies.Taxable supplies can be standard-rated (at 15 per cent currently) or zero-rated.Exempt supplies are simply not subject to VAT as opposed to zero-rated supplies, where there is VAT but the VAT is zero.There is a fine but very important distinction between the two.The distinction between the two types of supplies lies in the entitlement you have to claim the VAT that you have paid to your suppliers.If you make taxable supplies, you are entitled to claim all allowable VAT paid to suppliers and on import in respect of the goods or services that you sell.So, even if you raise VAT at zero per cent, you are still entitled to claim input VAT.The reason for this is that you have raised VAT on your supplies albeit that the rate charged was zero.The VAT Act contains the prescribed zero-rated supplies in Schedule III to the Act.The most common zero-rated supplies are the export of goods (where the seller consigns and delivers at an address in another country), international transport transactions, selling petrol and diesel for everyday use, selling maize meal, selling livestock and the supply of land or buildings for residential purposes.If you make exempt supplies, you cannot register for VAT.Accordingly, you don’t even stand a chance to claim any VAT paid to suppliers back from the Receiver of Revenue.The VAT paid to suppliers will be a cost to you and there is no chance to get a VAT refund from the Receiver.The only concession here is that you can deduct this VAT for income tax purposes to determine your taxable income.The VAT Act contains the prescribed exempt supplies in Schedule IV to the Act.The most common exempt supplies are long-term residential rentals (i.e.excluding hotels and B&B’s), medical services, public transport services and educational services.VAT charged to these organisations forms part of the cost of operating such an organisation because it cannot be claimed back from the Receiver of Revenue.The services we render as employees to our employer are deemed not be supplies and therefore we cannot register for VAT in respect of the services we render as employees.This puts us into the same position as an enterprise that makes exempt supplies.We simply cannot claim back the VAT that we pay when we buy any good or service.Being zero-rated for VAT is very cool – unfortunately all of us can’t make zero-rated supplies.Being exempt from VAT is not very cool – all persons not VAT-registered fall into this category but this is how the Receiver gets his money! Should readers have queries, they are invited to send them to cameron.kotze@za.ey.com

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