Zero-Rated vs Exempt VAT in Nigeria: Are You Losing Input VAT Credits? Myth vs Fact

In zero-rated vs exempt VAT in Nigeria, the difference is simple: a zero-rated supplier charges 0% and can still claim back the input VAT it paid on its costs, while an exempt supplier also charges nothing but cannot recover that input VAT. Treating the two as the same is a costly mistake.

Under the Nigeria Tax Act 2025, several goods that used to be exempt moved to the zero-rated list. Your VAT coding needs to match.

What is the myth?

The myth goes like this: "Our products carry no VAT, so it does not matter whether they are zero-rated or exempt." It matters a great deal. The customer sees no difference at the till. Your VAT account sees all of it.

What is the actual difference between zero-rated and exempt supplies?

Both types of sale leave VAT off the invoice. What changes is what happens to the VAT you paid on the way in. The Nigeria Tax Act 2025 sets the rules as follows, and the VAT rate stays at 7.5%.

• Zero-rated: Charged at 0%. Input VAT on related costs is claimable, so a supplier in a net-credit position can seek a refund. Basic foodstuffs, medical supplies and educational materials were previously exempt and are now zero-rated (Forvis Mazars).
• Exempt: Charged at nothing, but input VAT incurred in making exempt supplies stays non-claimable. It becomes a cost. Purchases by diplomatic missions were previously zero-rated and are now exempt.
• Mixed businesses: Costs shared between taxable and exempt activities must be apportioned. You can only claim the share that relates to taxable and zero-rated sales.

Why is the zero-rated vs exempt VAT mistake so expensive?

Take a hypothetical distributor that sells basic foodstuffs and spends ₦40 million a year on VAT-bearing costs such as transport, warehouse equipment and services. At 7.5%, that cost base carries ₦3 million of input VAT. If the sales are zero-rated, the ₦3 million is a credit the company can recover. If someone books the sales as exempt, the same ₦3 million is written off as an expense. The numbers on the invoices are identical. The profit is not.

For more on claiming credits on service costs, read our post Can you claim input VAT on services in Nigeria?.

What can you recover, and how fast?

The 2025 reforms widened input VAT recovery to services and fixed assets, as long as they are used to make taxable supplies. Three timing rules matter:

1. Claims must be made within five years of the relevant tax period.
2. Excess input VAT over output VAT becomes a credit. A refund request must be submitted within 12 months.
3. The Nigeria Revenue Service must process refunds within 30 days, and refunds can be set off against any type of tax liability.

Input VAT can only be claimed on taxable supplies made from 1 January 2026.

What does this mean for your business?

Run a short review before your next VAT return. It takes a day, not a week.

1. List every product and service line and tag it taxable, zero-rated or exempt under the 2025 Act, not under your old Finance Act habits.
2. Check that your accounting system maps each tag to the right VAT code. Items that moved from exempt to zero-rated need a new code.
3. Tag your costs the same way, and apportion shared costs with a method you can explain to an auditor.
4. Look back over 2026 returns. If you under-claimed input VAT on zero-rated lines, the five-year window and the 12-month refund rule are your friends. Act early.

FAQ

Is zero-rated VAT the same as VAT-exempt in Nigeria? No. Zero-rated sales are taxable at 0%, so input VAT on related costs is claimable. Exempt sales are outside the VAT charge, and input VAT incurred in making them is not claimable.

Can I get a VAT refund if my sales are zero-rated? Yes, where your input VAT exceeds your output VAT. The excess becomes a credit, a refund request must be submitted within 12 months, and the NRS must process it within 30 days.

What if I sell both exempt and taxable goods? You must apportion shared costs between the two. Only the part attributable to taxable and zero-rated supplies can be claimed.

Not sure whether your products are zero-rated or exempt, or whether you have been recovering the right amount of input VAT? Contact VOG Global in Area 10, Garki, Abuja, or visit vog.global. We will review your VAT coding and tell you plainly what you can claim.