# Understanding Zero-Rated Goods: VAT-Exempt Items and Examples

![Consumer shopping for bread, which is considered a zero-rated goods, in a grocery store.](https://www.investopedia.com/thmb/t9wx8Oe_vosYBf5C-sk4FZ4pSPA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Zero-RatedGoodsDefinitionandExamples-b80c85a36de14299ae928c29d5b02c3d.jpg)

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## What Are Zero-Rated Goods?

Zero-rated goods, in countries that use [value-added tax (VAT)](https://www.investopedia.com/terms/v/valueaddedtax.asp), are products that are taxed at a 0% VAT rate, meaning no tax is charged on their sale. These goods are often essential items, such as basic food staples, books, or children's clothing, designated as zero-rated to make them more affordable for consumers.

By reducing the tax burden on these everyday necessities, governments aim to ease living costs, particularly for lower-income households. Zero-rated goods also play a role in international trade, as their tax-exempt status can influence pricing and compliance with cross-border tax regulations.

### Key Takeaways

*   Zero-rated goods are key to economies as they often form a crucial part of the supply chain and are exempt from VAT, making them more affordable for consumers.
*   Items designated as zero-rated can vary by country but typically include essential goods such as basic foodstuffs, prescription medications, and water services.
*   Zero-rated goods are critical in international trade as they are not subject to VAT in cross-border transactions, lowering costs for importing and exporting.
*   Unlike exempt goods, zero-rated goods are taxed at a rate of 0%, allowing businesses to claim a credit for input tax paid on supplies that go into making a zero-rated product.
*   The designation of zero-rated goods can have significant socio-economic implications, as seen in South Africa's response to VAT rate increases, ensuring vital goods remain accessible to low-income households.  
    

## How Zero-Rated Goods Impact the Economy

In most countries, the government mandates a domestic VAT requirement for goods and services. In most countries, product prices include VAT, which is added to [sales tax](https://www.investopedia.com/terms/s/salestax.asp) in many transactions. The VAT is a form of consumption tax.

Countries using VAT designate certain goods as zero-rated goods. Usually, zero-rated goods are specific items. Countries designate these products as zero-rated because they are leading contributors to other manufactured goods and a significant component of a broader [supply chain](https://www.investopedia.com/terms/s/supplychain.asp). Many food items are zero-rated, meaning they have 0% VAT.

Examples of items that may be zero-rated include certain foods and beverages, [exported goods](https://www.investopedia.com/terms/e/export.asp), donated goods sold by charity shops, equipment for the disabled, prescription medications, water, and sewage services, books and other printed publications, and children's clothing.

Buyers often use zero-rated goods in production, benefiting from lower costs without VAT. A food manufacturer may use zero-rated goods in the manufacturing of a food product, but when the consumer buys the final product, it includes a VAT.

Without VAT, zero-rated goods cost less to purchase. Buyers can save a lot with zero-rated goods. In the United Kingdom, for example, the standard VAT rate levied on most goods is 20%, and the reduced rate is 5%.

### Global Trade and Zero-Rated Goods: What You Should Know

When importing goods, consumers usually face international VAT and [tariffs](https://www.investopedia.com/terms/t/tariff.asp). Zero-rated goods don't incur international VAT, reducing import and export costs.

### Distinguishing Zero-Rated From Exempt Goods

Some goods and services are also reported as exempt from VAT. These exempt goods and services are typically a focused group provided by a seller that is not subject to VAT.

The European Commission, for example, exempts goods such as finance and [insurance](https://www.investopedia.com/terms/i/insurance.asp) services, and some land building supplies. Other examples of exempt goods are those that serve the public interest, such as medical and dental care, social services, and education.

## Real-World Examples of Zero-Rated Goods

Zero-rated goods often include essentials such as food, sanitary products, and animal feed. Zero-rating these items makes them more affordable for lower-income consumers.

For example, in 2018, an independent panel at the University of Stellenbosch in South Africa made the recommendation to add several items to the country’s list of zero-rated food items. White bread, cake flour, bread flour, baby and adult diapers, sanitary products, and school uniforms were some of the items.

The recommendation came on the heels of an increase in the VAT rate in South Africa from 14% to 15%, a move that was opposed by many, who saw it as harmful to lower-income households. The country's finance minister at the time, Nhlanhla Nene, appointed the independent panel, which was headed by professor Ingrid Woolard, who teaches economics at the University of Stellenbosch.

The panel’s recommendations expanded an existing list of 19 zero-rated food items, including brown bread, fruits, vegetables, dried beans, rice, lentils, maize meal, milk, eggs, fish, mealie rice, and vegetable oil.

## The Bottom Line

Zero-rated goods are taxed at a 0% VAT rate, helping reduce costs for both consumers and manufacturers. Essential items like basic foods, sanitary products, and exports often fall into this category, making them more affordable and widely accessible, especially for lower-income households.

Zero-rated goods also support international trade by avoiding VAT on imports and exports. Unlike exempt goods, such as healthcare and education services, which are outside the VAT systems, zero-rated goods remain taxable but at a 0% rate, allowing businesses to reclaim input VAT and maintain supply chain efficiency.  

> **Article Sources**
>
> 1.  Government of U.K. "[VAT Rates](https://www.gov.uk/vat-rates)."
>     
> 2.  European Commission, Taxation and Customs Union. "[Exemptions](https://taxation-customs.ec.europa.eu/exemptions_en)."
>     
> 3.  The Conversation. "[Zero Rated VAT Items: How South Africa Is Going About Expanding the List](https://theconversation.com/zero-rated-vat-items-how-south-africa-is-going-about-expanding-the-list-101569)."