Exempt Or Zero-Rated? Making The Difference Real

I am among the 20% of Ugandans that were born before 1986. My father worked for the Uganda Army and my mother worked for the Grindlays Bank, she sat in a building right next to the Central Bank of Uganda.

The first day I visited the bank was the first time I visited the post office. I saw how she went about business at work and what she did to pick the family mail. The post has many small boxes each labelled with a number and a keyhole. Each time she talked of a bank account, I imagined a box like the one at the post. In my mind, when you deposited money, someone would place it in your box. I found the post and the bank a lot similar because they resided in very huge buildings with high roofs and had large counters in wide halls. The fact that, they were both on Kampala's main street and on either side of the BoU also made it worse for me to distinguish yet they were so different.

Now, this year on different fora; ranging from a simple consultation over the phone, on watsup to more formal discussions; there has been one common query. "So what is the difference between exempt and zero-rated?" "What about this zero-rated stuff of yours?" "I have never understood this zero-rated thing."

After those questions from quite a wide spectrum, the temptation for us to have the "zero-rated discussion" on these pages has been so compelling because these two have similarities yet so different.

For most of the tax systems as far as Value Added Tax (VAT) is concerned, there is what is called taxable supplies on which VAT should be collected; and exempt supplies on which VAT is not applicable.

A state could have more than one distinct VAT rates to apply to these taxable supplies, but in such cases one rate is determined to be the standard rate or normal rate while the others are declared as special rates or reduced rates. We need to note at this moment that the reduced rate or special rate can be anything; 7%, 2% or 0.5%. It can as well be a 0% rate.

For example, there are countries in Europe that have a VAT standard rate of 20% (applied to most of the goods and services), a reduced rate of 5% (applicable to children's car seats and home energy for example) and a Zero rate (applied to most foodstuff and children's clothes).

In Uganda we pretty much have the same system; a standard rate of 18% applicable to most of the taxable supplies and a reduced rate or zero rate (0%) applicable to a few selected taxable supplies like drugs & medicines, sanitary towels &amp...

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