In the realm of sales tax, zero rated and exempt goods are often misconstrued as having the same treatment. However, there are fundamental differences between the two.
When a normal invoice is issued, the prevailing sales tax rate of 17% (18%) or the reduced rate is mentioned. Exempt goods are not charged any sales tax, and the invoice clearly indicates that the goods involved are exempt. On the other hand, a zero rated invoice specifies that the tax rate is zero percent.
Although exempt goods are not charged sales tax at the final stage of the supply chain, the cost of manufacturing still includes items that are not exempt. Therefore, the sales tax paid during the manufacturing process becomes a part of the end cost, and the input tax minus output tax is paid to the government. This means that the seller is indirectly charging the sales tax to the consumer. However, if the seller does not add the output tax to the price and tries to recover the tax from the government as input tax, it is not allowed as input tax claims on zero rated goods are not permitted by the government.
On the other hand, in the case of zero rated goods, the government permits the input to be claimed and refunded to the supplier. Consequently, the supplier does not invoice the input tax as output tax and recovers it from the end consumer.
In summary, zero rated and exempt goods may seem similar, but they have significant differences in their treatment under sales tax rules.