The Complete Beginner’s Guide To KRA Turnover Tax (TOT) In Kenya

KRA Turnover Tax (TOT) is tax payable by small businesses whos gross sales does not exceed or is not expected to exceed Kshs. 5,000,000.00 per year (annum). The tax is payable on a monthly basis at the rate of 3% of the gross sales of the business amd is paid on or before the 20th day of the following month. 

As a taxpayer in Kenya, you need to take note that Turnover Tax (TOT) applies to business resident person whose turnover from business does not exceed or is not expected to exceed Kshs 5,000,000 during any year of income. So, if you know you own and run a business that fits into this tax category, then you need to ensure that you Register for Turnover Tax. 

In accordance with the Finance Act, 2019, the Turnover Tax (TOT) was re-introduced and is payable from 1st January 2020. For example, if you run a business in January 2020 and are eligible for Turnover Tax (TOT), then you will declare this tax by filing and paying for it in February 2020 for the sales that you made in January 2020. You will pay 3% of the gross sales to Kenya Revenue Authority (KRA). 

Benefits of Turnover Tax (TOT)

I know what you are thinking. Do taxes in Kenya have benefits? Well, for businesses that are eligible to this tax, there exists a wide of benefits that is associated with this tax. The major benefits of the Turnover Tax (TOT) to business owners in Kenya includes the following;-

There will be reduced expenses as there is no need for business owners to hire accountants or auditors; There is a simplified filing and payment processes including payment through mobile phones using the KRA M-Pesa Paybill Number; The taxpayers (business owners) are not required to keep complex accounting records, they are only required to keep a daily gross sales record for their business.

Who Is Excluded From Payment Of Turnover Tax (TOT)?

Turnover Tax (TOT) is payable by any resident person whose turnover from business does not exceed or is not expected to exceed Kshs 5,000,000 during any year of income. The Turnover Tax (TOT) does not apply to the following groups;

Persons registered for VAT; Persons with business income of Kshs 5,000,000 and above; Persons with Employment Income; Persons with Rental Income; Limited Liability Companies; Management and Professional Services.

NOTE: If you are employed and have a business on the side (side hustle) whose income is below Kshs. 5,000,000/- p.a then you are also required to pay Turn Over Tax (TOT) on the business income. Also, Partnerships whose income is below Kshs. 5,000,000/- p.a are also required to register and pay TOT.

If you make no sales in a particular month, you are required to file a NIL return to avoid being penalized. TOT late filing penalty is Ksh. 5,000 per month. Late payment penalty is 5% of the tax due. Interest on unpaid tax is 1% of the tax due. 

Can A Taxpayer Choose Not To Be Subject To Turnover Tax (TOT)?

A taxpayer can choose not to be subject to Turnover Tax (TOT) by applying to the Commissioner in writing in which case the taxpayer shall be expected to prepare accounts and file returns annually under the normal income tax regime. 

Is Turnover Tax (TOT) Final Tax?

The answer to this question is a resounding YES. Taxpayers who declare and pay Turnover Tax (TOT) will not be required to file monthly VAT returns and the annual income tax returns. This simply means that when others will be lining up to file their annual returns, you will be sitting pretty. 

What Is The Rate of Turnover Tax (TOT)?

The tax rate for TOT is 3% on the gross sales/turnover and is a final tax. Lets take an example. Assuming that you run a small business in Kenya and the business is eligible to Turnover Tax (TOT), and lets the gross sales for the month of January for your business is Kshs. 150,000.00 as per your sales books. So, what is the total amount of tax that your business is supposed to file and pay KRA?

You will take the 3% tax rate and multiply it by the gross sales of Kshs. 150,000.00 giving you tax due of Kshs. 4,500.00 Now this is the Turnover Tax (TOT) that you will have to pay for the sales that you did in January. Kindly take note that this tax is charged on the Gross sales of a business and not the net profit of the business. No expenses are allowed under Turnover Tax (TOT). 

How To Register For Turnover Tax (TOT)?

All eligible taxpayers shall register through the KRA iTax Portal. Since Presumptive Tax and Turnover Tax go hand in hand, with TOT you will have to add business as a source of income in your KRA PIN. Once business has been added as a source of income, then you will need to add the Turnover Tax (TOT) under tax obligations. You can refer to the article I wrote on How To Register For Turnover Tax using KRA iTax Portal. This will guide you on how you can Register for KRA Turnover Tax quickly and easily today. 

TOT REGISTRATION: How To Register For Turnover Tax Using KRA iTax Portal

Once you added business as a source of income in your KRA PIN and at the same time added the Turnover Tax as a tax obligation, then you will need to take note that the Turnover Tax Returns are filed and paid on or before the 20th day of the following month. For example, the Turnover Tax for the month of January 2020 is payable on or before the 20th day of February 2020.  Any sales made from1st January 2020 up to, and including 31st January, 2020 is chargeable to TOT. To be able to file Turnover Tax Returns on KRA iTax Portal, you can refer to our article on How To File Turnover Tax Returns In Kenya Using iTax Portal. 

TOT FILING: How To File Turnover Tax Returns In Kenya Using iTax Portal

TOT PAYMENT: How To Pay Turnover Tax Using KRA Paybill Number 572572

READ ALSO: How To Change KRA PIN Email Address Using iTax Portal

That is the complete guide to Turnover Tax in Kenya that you need master this year and going forward in the future years. The good news is that one does not need to visit KRA Offices to pay this tax, they can do it at the comfort of their homes using their phones. Just remember if you know that you business fits and qualifies to pay Turnover Tax, then you need to Register for Turnover Tax today.