Different types of supply
The Value added tax (VAT) act provides for 4 different types of supplies:
- Standard – Levied at 14%
- Zero rated – Levied at 0%
- Exempt – No VAT is levied
- Deemed – Levied at 14%
Standard rated and deemed supplies are very straight forward, all you need to know is what is a standard supply and what is a deemed supply. But on the other hand zero rated and exempt supplies are not so easy to understand.
Zero rated and Exempt supplies
When you look at zero rated and exempt supplies you could argue that in the end both end up at having no VAT implications. This is correct when it comes to output tax (Charged on the supply of goods and services by you).
Example: If you export goods to Germany the export will be zero rated and no VAT will be payable. If you receive interest on a loan it will fall under exempt financial services and will therefore not be taxable. In both cases where a supply was made there were no VAT implications.
But when you look at input tax (Charged on the supply of goods and services to you) it will be as follows.
Example: When you import goods or services from Germany you can claim an input tax deduction at the standard rate of 14% even though it is a zero rated supply. But when you pay interest on a loan it will still be an exempt supply and no input tax deduction can be claimed.