How to File and Pay Turnover Tax in Kenya

Turnover Tax (TOT) is a tax payable by small businesses whose gross sales does not exceed or is not expected to exceed Kshs. 5 million per year. It is payable on monthly basis at the rate of 3% on the gross sales by the 20th day of the following month. Turnover Tax came into effect on 1st January 2020.

Turnover Tax

Turnover Tax(TOT) is a tax charged on gross sales of a business as per Sec. 12(c) of the Income Tax Act.

First introduced vide Finance Act 2006, replaced by Presumptive Income Tax vide Finance Act 2018 then reintroduced vide Finance Act 2019.

The effective date of TOT is 01/01/2020

Who should pay TOT?

Turnover Tax (TOT) is payable by resident persons whose gross turnover from business is more than Kshs. 1,000,000 and does not exceed or is not expected to exceed Kshs 50,000,000 in any given year. 

TOT does not apply to:

1. Persons with business income below Ksh. 1,000,000 and above Kshs. 50,000,000,
2. Rental Income,
3. Management, Professional and Training Fees,
4. Any income that is subject to a final withholding tax under the Income Tax Act

 Note:

• Eligible taxpayers are advised to log onto iTax, add the TOT obligation, file the monthly returns and make payment.
• Taxpayers who are eligible for Turnover Tax may opt not to be under the provisions of this tax by writing to the Commissioner of Domestic Taxes. However this is subject to approval.

What is the rate for Turnover Ta x (TOT)?

• Turnover Tax is charged at the rate of 1% on gross sales. 
• Expenses are not deductible.
• This is a final tax.

Filing of TOT Returns

TOT will be filed and paid on a monthly basis. The due date is on or before 20th of the following month.

Turnover Tax Return

1. Login to iTax
2. Under the returns menu, select file return, then turnover tax and download the excel return.
3. Complete the return and submit
4. After filing the return, go to payment menu, select ‘payment’, select the amount payable, and generate a payment slip.
5. Make the payment at a partner bank or through M-pesa

What is the penalty for Non-Compliance?

• TOT late filing penalty is Kshs. 1,000 per month (wef 25/04/2020)
• Late payment penalty is 5% of the tax due
• Interest on unpaid tax is 1% of the principal tax due.

 Emerging Issues under TOT

• The tax rate reduction from 3% to 1%
• The removal of Presumptive Tax (wef 25.04.2020)
• The change in filing regime from quarterly basis to a monthly basis.
• The change in threshold from below Ksh. 1M to between Ksh. 1M and Ksh 50M. This will imply that business with a turnover above Ksh. 5,000,000 will pay both TOT and VAT.

Registration for Turnover Tax Obligation

Taxpayers that fall under the Turnover Tax Regime are expected to self-register on the Itax portal voluntarily. This should be done by amending a taxpayer’s PIN details under the income obligation section.

The commissioner of Domestic Taxes is also given powers by the Tax laws to register a Taxpayer forcefully where they fail to register voluntarily.

Computation for Turnover Tax

Turnover Tax is charged at a rate of 3% of the gross revenue. This means that any business that is subject to TOT has to pay 3 shillings to KRA for every 100 hundred shillings they make as sales.

Expenses are not deductible in computing the Turnover Tax one is supposed to pay. This means a person running a Kiosk will not deduct expenses such as rent and other utility bills in arriving at the net amount.

You pay the Taxman first, 3% of revenue then the balance you net the expenses. The only expense that should be netted off is the Presumptive Tax paid for the period. Presumptive Tax is a tax that is payable on Application for a business operating license from the county governments.