Sales tax is a tax that is levied on the sale of goods and services. In Pakistan, sales tax is levied at a rate of 17%. However, there are some goods and services that are exempt from sales tax, such as basic necessities and exports.
Zero-rated supplies and exempt supplies are both types of supplies that are not subject to sales tax. However, there is a key difference between the two:
- Zero-rated supplies are supplies on which sales tax is charged at a rate of 0%. This means that the seller of a zero-rated supply is required to collect sales tax from the buyer, but the seller is then able to claim a refund of the sales tax from the government.
- Exempt supplies are supplies on which sales tax is not charged at all. This means that the seller of an exempt supply is not required to collect sales tax from the buyer, and the seller is not able to claim a refund of sales tax from the government.
Examples of Zero-Rated Supplies
Some examples of zero-rated supplies include:
- Exports
- Basic necessities such as food and medicine
- Services provided by the government
- Supplies made to an Export Processing Zone (EPZ)
Examples of Exempt Supplies
Some examples of exempt supplies include:
- Financial services such as banking and insurance
- Education and healthcare services
- Supplies made to a non-profit organization
- Supplies made to a diplomatic mission
Conclusion
Zero-rated supplies and exempt supplies are both types of supplies that are not subject to sales tax. However, there is a key difference between the two: zero-rated supplies are supplies on which sales tax is charged at a rate of 0%, while exempt supplies are supplies on which sales tax is not charged at all.
By understanding the difference between zero-rated supplies and exempt supplies, businesses can ensure that they are complying with sales tax laws and that they are not overpaying in taxes.
