VAT, as the most significant tax, has a very significant impact on both the state budget and the financing of its financed items, as well as the citizens and entrepreneurs. VAT as a tax is very important for the economy, as it is included in the final price of a product or service if the entrepreneur is in the VAT system, which directly affects at their competitiveness on the market. In order to make certain services accessible to all users, but also to minimize the risk of their existence, and also to increase the competitiveness of entrepreneurs, tax exemptions from VAT on certain products and services were introduced. This implies a research problem that can be defined as an account of how tax exemptions work and their impact on the population and entrepreneurs. The aim of the paper is to analyze tax exemptions and their impact on the citizens and entrepreneurs. The paper defines taxes as the basis for each state's revenue generation. The tax system of each state is very complex and dependent on many factors, made up of numerous taxes, while the paper focuses on value added tax as the most generous tax. VAT is defined, the term of the taxpayer is also defined, the concept of a tax base with special emphasis on the tax rates currently in use. The VAT system in the Republic of Croatia changes significantly almost every year, which is why it is very necessary to keep track of the changes that have occurred. It is also necessary to distinguish the tax exemptions that are dealt with in the empirical part of the work from the taxation of zero VAT, since when it comes to tax exemptions, the taxpayer does not have the right to levy taxes. Tax exemptions are very numerous and it is necessary to study them very closely in order to avoid errors in the interpretation of the VAT Act.