Exempt or zero-rated: why it matters for Nigerian VAT
Exempt and zero-rated sales both carry no VAT in Nigeria, but only one lets you reclaim input VAT. How to tell them apart and code them correctly.
By Achekam · · 5 min read · For Running a business businesses in Nigeria
To a customer, an exempt sale and a zero-rated sale look identical. The invoice shows no VAT, the total is the same, and nobody at the counter cares which label sits on the line. To the business making the sale, the difference can be the whole of its input VAT on the costs behind that sale.
Nigerian businesses that sell food, medicines, books, school services or exports deal with this every month. Getting the label wrong does not change what the customer pays, but it changes what the business can claim back, and an error repeated across a year's returns becomes expensive. This article explains the difference, the rules the Nigeria Revenue Service (NRS) applies, and how to code each sale correctly.
Same price to the customer, different result for you
The NRS says the standard VAT rate in Nigeria is 7.5%, with certain goods and services zero-rated or exempt. Under the Nigeria Tax Act, 2025, VAT is charged at 7.5% on the value of all taxable supplies, subject to the exempt and zero-rated supplies the Act lists.
The difference between the two shows up on the cost side:
- A zero-rated sale is a taxable supply charged at a rate of nothing. Because it is still a taxable supply, the input VAT on the costs of making it can generally be claimed.
- An exempt sale is outside the charge altogether. The NRS says input VAT on exempt supplies cannot be claimed.
The NRS also says a registered person may deduct input VAT only where it was incurred for making taxable supplies, and only the proportion relating to taxable supplies where the person makes both taxable and non-taxable ones.
Input VAT on exempt items goes to the income statement
What happens to the VAT you paid on costs for exempt sales? The NRS answers this directly in its guidelines on refunds: input VAT incurred on exempt items cannot be claimed against output VAT and should be expensed in the income statement.
So for an exempt business, VAT on rent, equipment and services is simply part of the cost of doing business. For a zero-rated business, the same VAT is normally recoverable, and a business whose sales are mostly zero-rated may find its input VAT regularly exceeds its output VAT.
Which sales are zero-rated
The Act zero-rates basic food, medical and pharmaceutical products, educational books and materials, medical services, tuition from nursery to tertiary level, and exported goods other than oil and gas, among other items. Other zero-rated items include fertilisers, exported services, and electric vehicles and parts.
The NRS's own VAT page gives examples of zero-rated and exempt items, along with who must register, the monthly return and input VAT recovery. Note that the page lists its examples together without always saying which are zero-rated and which are exempt, so use the Act's lists when you need to be sure. A longer look at the zero-rated categories is in Nigerian zero-rated goods and services.
Businesses with both kinds of sale
Many businesses do not fit neatly into one box. A pharmacy sells zero-rated medicines alongside standard-rated cosmetics. A school charges zero-rated tuition but sells standard-rated items in its shop. A business with exempt sales as well as taxable ones must split its input VAT.
In words: a business pays VAT on its shared rent and electricity. The part that relates to its taxable sales, including zero-rated ones, can be claimed. The part that relates to its exempt sales cannot, and goes to the income statement. Choose a reasonable basis for the split, write it down and apply it consistently; your accountant can help you pick one. Claiming input VAT in general is covered in claiming input VAT.
Choosing the right tax code on each invoice line
In Achekam, a Nigerian business picks a tax code on each invoice line: standard, zero-rated, exempt, out of scope or reverse charge. Only standard lines carry VAT, at the approved rate for its country. This applies once the Nigeria pack is activated in the workspace settings.
Because the code is chosen line by line, a mixed sale can be invoiced correctly: the medicine on a zero-rated line, the cosmetics on a standard line. The customer sees one invoice; your VAT records see two different treatments.
One point to know: while the Nigerian VAT rate rule awaits platform approval, Achekam refuses to charge standard-rate VAT on a Nigerian workspace's invoice and tells the user to choose a tax code without VAT or wait. If you see that message, do not switch a standard-rated line to zero-rated or exempt to get the invoice out. That would put the wrong treatment on the record.
The till: exempt products are recorded as zero-rated
There is a gap at the till that matters for exactly this question. In Achekam today, a product marked Exempt in the Item Master is recorded at the till, and on the VAT return, as zero-rated. The exempt or zero-rated choice is never saved on the product.
For a business that sells exempt goods over the counter, that means the till's VAT figures will show those sales as zero-rated. Until the product setting is saved and read by the till, keep your own list of exempt products, total their till sales for each month from your sales records, and have your accountant reclassify them before the VAT return is filed. Without that step, input VAT on the costs of those sales could be claimed when it should not be.
A coding check before the VAT return
Each month, before the return is prepared:
- List your sales by tax code and look for anything coded zero-rated that is really exempt, or the reverse.
- Check new products and services added in the month against the Act's lists.
- Reclassify exempt till sales that were recorded as zero-rated.
- Split shared input VAT between taxable and exempt sales on your written basis.
- Expense the exempt share of input VAT instead of claiming it.
- Keep the working with the return, so the split can be explained later.
Working through this list each month is far cheaper than defending a year of claims the NRS later disallows.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
