But if you’re importing, exporting, or moving goods across borders, the difference between these two tax treatments can have a real impact on your bottom line.

Zero-Rated vs VAT-Exempt: Why the Distinction Matters

At first glance, zero-rated and VAT-exempt supplies seem similar. Customers don’t pay VAT on the final sale in either case. But that’s where the similarities end. For zero-rated goods and services, VAT is technically charged at 0%. This means the transaction is still considered taxable, so your business can claim back the VAT you paid on related costs like freight, packaging, warehousing, and clearing. It's a valuable relief, especially if you’re managing tight margins or large shipments.

VAT-exempt supplies, on the other hand, work differently. No VAT is charged on the final sale, but you also lose the ability to recover any VAT paid on your business expenses linked to those supplies. That unrecoverable VAT becomes a direct cost; one that often gets passed along to customers through higher prices, or absorbed by your business as a hit to your margins.

Because this distinction can make such a difference, the Kenya Revenue Authority (KRA) regularly reviews and updates the lists of zero-rated and VAT-exempt goods. In July 2026, for instance, KRA released an updated schedule for TIMS and eTIMS, shifting several items between categories and adding new ones. For any business involved in cross-border trade, staying updated isn’t just a box-ticking exercise. It’s essential for accurate costing and compliance. 

Exporters, in particular, benefit from zero-rating, as exported goods, certain services, and eligible supplies to Export Processing Zones (EPZs) and Special Economic Zones (SEZs) are all zero-rated under the VAT Act. That means you can usually claim back input VAT you’ve paid on logistics expenses like freight, clearing, forwarding, and storage.

However, if a product moves from zero-rated to exempt, though, you lose that ability to claim input VAT. Suddenly, costs that were recoverable become a new expense. 

There’s another angle to consider: VAT changes can also affect transport costs in a broader sense. When the reduced 8% VAT rate on select petroleum products ended on 1 July 2023, the result was higher fuel costs, which continue to shape freight rates across the country.

What Kenyan Exporters and Importers Should Watch

Don’t rely on last year’s invoice when quoting shipping or landed costs. Always check your product’s current VAT classification on iTax or the latest KRA schedule. If you deal with both zero-rated and exempt goods, make sure you’re apportioning input VAT correctly. Missteps here are a common cause of eTIMS compliance issues flagged during KRA audits. Even a simple misclassification by a clearing agent on a customs entry can cost you a legitimate input VAT claim. And remember, if your taxable turnover is KES 5 million or more in twelve months, VAT registration is a must, and how you classify your goods affects what you can claim back.

How to Protect Your Margins

The best way to avoid unpleasant surprises is to build a habit of checking KRA’s updated VAT schedules before you finalize supplier contracts or shipping quotes, especially after the finance bill period. Involve your tax advisor or clearing agent early in the process, not after the shipment has already landed. And keep your eTIMS records up to date, so you have a clear paper trail to support your input VAT claims if KRA ever comes knocking.

 It can shape your shipping costs, influence your cash flow, and affect the profitability of every cross-border transaction. Staying on top of VAT changes, keeping your paperwork in order, and choosing reliable logistics partners can help you avoid unnecessary costs and keep your goods moving smoothly.

VAT is just one piece of the supply chain puzzle. With a DHL Business Account, you get access to world-class international shipping solutions, customs expertise, real-time shipment tracking, and business tools tailored for Kenyan businesses. Open a DHL Business Account today, and discover how effortless international shipping can be when the details are handled by experts.

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