Zero-Rated vs VAT Exempt: feature by feature
| Zero-Rated | VAT Exempt | |
|---|---|---|
| VAT charged to customer | No (rate is 0%) | No (outside VAT scope) |
| Seller claims input VAT | Yes | No |
| Included on VAT return | Yes, as zero-rated supply | Sometimes, as exempt supply |
| Common examples (Kenya) | Exported goods, some food staples | Financial services, some medical services |
| eTIMS tax type | Zero-rated, specified at line level | Exempt, specified at line level |
| Impact on pricing | Seller recoups input VAT, lower net cost | Seller absorbs input VAT, higher net cost |
More detail
The practical consequence is that a business selling only exempt goods cannot register for VAT and cannot recover the VAT it paid on its own purchases. A business selling zero-rated goods can register and does recover it.
In eTIMS, each invoice line must be tagged correctly. Mixing up zero-rated and exempt leads to a wrong VAT return and potential KRA penalties.
Free tools for this
Frequently asked questions
Can one business have both zero-rated and standard-rated sales?
Yes. Many businesses sell a mix. You calculate input VAT apportionment across the different supply types.
Is ugali zero-rated or exempt?
Basic food staples in Kenya have specific tax treatment under the VAT Act. Confirm with a tax advisor for your specific products, as the list changes with Finance Acts.
Veira combines POS, M-Pesa, KRA eTIMS and inventory in one app with a free terminal. Book a demo and see how it fits your trade.