Supplies are categorized into broad legal classes that dictate whether tax is charged and whether input tax can be recovered.
                                  +-----------------------+

                                  |   All Economic Goods  |
                                  |     and Services      |
                                  +-----------+-----------+
                                              |
                     +------------------------+------------------------+

                     |                                                 |
          +----------v----------+                           +----------v----------+

          |   Taxable Supplies  |                           |   Exempt Supplies   |
          +----------+----------+                           +---------------------+
                     |                                      (No VAT charged;
         +-----------+-----------+                           No input tax credit)

         |                       |
+--------v--------+     +--------v--------+

|  Standard Rate  |     |    Zero Rate    |
+-----------------+     +-----------------+
(e.g., 16% VAT;         (0% VAT; Full
Input tax credit)       input tax credit)

Standard-Rated Supplies
These are default taxable transactions subject to the primary statutory rate (e.g., 16%). Examples include commercial legal services, electronics, vehicles, and manufactured goods. Input tax incurred to produce these supplies is fully deductible.
Zero-Rated Supplies
These supplies attract VAT at a rate of 0%. The law zero-rates essential items to minimize the tax burden on low-income households and boost exports.
  • Examples: Exported goods, international air travel, crop seeds, and basic foodstuffs like milk or maize flour.
  • Input Tax Treatment: Traders making zero-rated supplies can claim a full refund for all input VAT incurred during production.

Exempt Supplies
Exempt items are completely outside the VAT net by statutory design. No VAT is charged on the sale.
  • Examples: Financial services (interest on loans), residential rent, education services, and unprocessed agricultural products.
  • Input Tax Treatment: Businesses cannot claim input tax deductions for expenses incurred in making exempt supplies. This disallowed input tax becomes a direct business cost.

 
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