Definition: Zero-rated goods are products that are not subject to value added taxes mainly due to their societal importance or personal necessity. For VAT purposes, these goods are zero-rated and don’t have additional taxes levied on them. Some examples include groceries and goods sold by charities.
What does zero rated goods mean?
What is the definition of zero-rated goods? Zero-rated goods are commonly found in other countries like the UK that have value-added taxes on certain products. The US congress has brought up the idea of a valued added tax on products in the United States, but it has never been passed on a federal level.
A value added tax is a tax that is built into the price of the product. For instance, a manufacturer might be taxed 17% to manufacture a certain product. This 17% tax is passed down to the consumer who buys the product at a higher cost from the manufacturer. So many value-added taxes are not readily apparent to consumers who are actually paying them. They simply get used to paying higher prices for goods and services without knowing what the actual cost is to produce them or the fact that the government is taking an extra fee from the production of that good or service.
Let’s take a look at an example
Example
In the UK goods like groceries, water, and prescription drugs are not subject to VAT. The rationale for this tax treatment is that these goods are necessities for people and a requirement society to function efficiently. Raising the cost of these goods will make it more difficult for citizens to survive and can stagnate the economy.
By keeping these goods zero-rated, consumers can save anywhere from 5-17% on these goods. Most governments around the world that create value added taxes allow certain necessities to be exempt just like the UK did. Zero-rated goods help lower the cost of living for citizens even though they may not be aware of it.
Summary Definition
Define Zero Rated Goods: Zero-rated goods are products that exempt from VAT taxes. These products typically include necessities like food, medications, and baby supplies.
