Turnover Tax (TOT) is a tax regime designed to simplify tax compliance for small and medium-sized businesses in Kenya. This tax is especially beneficial for those whose income is within a specific range, offering a simplified tax structure with lower rates and minimal record-keeping requirements.
If your business falls within the threshold, our firm, Junyan and Associates, can assist you in filing and paying your turnover tax promptly and accurately. In this guide, we explain what turnover tax is, the eligibility criteria, benefits, and the process of filing and paying TOT in Kenya.
Table of Contents
What is Turnover Tax (TOT)?
Turnover Tax (TOT) is a tax imposed on businesses whose annual gross turnover exceeds Kshs. 1,000,000 but does not surpass Kshs. 25,000,000. This tax is governed by Section 12 (C) of the Income Tax Act (CAP 470) and is designed to ease the tax burden on small and medium-sized businesses by simplifying compliance.
Rate of Turnover Tax
As of July 1, 2023, following the Finance Act 2023, the TOT rate is set at 1.5% of gross sales. It is a final tax on the gross turnover, meaning no deductions for expenses are allowed under this regime.
Eligibility for Turnover Tax
Any resident individual or corporate entity whose gross or expected turnover is between Kshs. 1,000,000 and Kshs. 25,000,000 per year qualifies for TOT. However, a person may opt-out of TOT by notifying the Commissioner in writing. In such cases, the individual or business must comply with other provisions of the Income Tax Act, including filing regular tax returns.
VAT Registration Requirements
If a business registered for turnover tax deals in vatable supplies and has an annual turnover exceeding Kshs. 5,000,000, they must also register for VAT.
Exemptions Under Turnover Tax
There are certain exemptions where TOT does not apply, including:
- Rental Income
- Management, Professional, or Training Fees
- Income Subject to Final Withholding Tax such as qualifying dividends or interest.
- Non-Resident Taxpayers are also exempt from paying TOT.
Filing and Paying Turnover Tax: The Process
Filing and paying TOT is straightforward. You can do it through the iTax platform provided by the Kenya Revenue Authority (KRA). Here’s how:
Registration for Turnover Tax
To register for Turnover Tax, follow these steps:
- Login to iTax: Use your PIN and password at https://itax.kra.go.ke.
- Amend PIN Details: Under the ‘Registration’ module, select ‘Amend PIN Details.’
- Select TOT: In section A (Basic Information), answer “Yes” to the question, “Do you want to register for TOT?”
- Submit Application: In section B (Obligation Details), select the registration date for TOT and submit.
Filing Your TOT Returns in Kenya
After registering, you must file your TOT returns monthly, following these steps:
- Login to iTax: Go to https://itax.kra.go.ke.
- File Return: Under the ‘Returns’ menu, select ‘File Return,’ choose ‘Turnover Tax,’ and download the Excel return.
- Complete and Submit: Fill in your gross sales for the period, upload the completed form, and submit it.
- Generate Payment Slip: After filing, go to the ‘Payment’ menu, select the amount payable, and generate a payment slip.
- Make Payment: Pay via a partner bank or M-PESA.
Due Date for Filing TOT in Kenya
The due date for filing and paying TOT is the 20th of every month following the end of the tax period. For example, the TOT for January must be filed and paid by February 20th.
Penalties for Late Filing and Payment
Late filing and payment of TOT attract penalties and interest, as follows:
- Late Filing Penalty: Kshs. 1,000 per month.
- Late Payment Penalty: 5% of the unpaid tax.
- Interest on Unpaid Tax: 1% of the tax due.
To avoid penalties and ensure timely compliance, Junyan and Associates offers comprehensive TOT filing services, ensuring that you meet all your tax obligations accurately and on time.
Benefits of Turnover Tax
The TOT regime offers several advantages for businesses:
- Simplified Compliance: TOT significantly reduces the complexity of tax filing, as taxpayers only need to keep daily records of their gross sales and purchases.
- Time-Saving: The simplified filing process and reduced record-keeping requirements save businesses valuable time.
- Mobile Payment Options: Taxpayers can file and pay TOT via mobile phone using the KRA M-Service App, making the process even more convenient.
- Final Tax: TOT is a final tax on gross sales, which means no additional tax obligations (such as filing an end-of-year income tax return) on income subject to TOT.
- Lower Record-Keeping Costs: Since TOT taxpayers only need to maintain records of daily gross sales, administrative and bookkeeping expenses are reduced.
How Junyan and Associates Can Help
At Junyan and Associates, we specialize in helping businesses comply with tax regulations, including the Turnover Tax. We offer personalized services to guide you through every step of the registration, filing, and payment process.
Our team is highly experienced in handling tax issues and is committed to providing you with accurate and timely services. Whether you are a small business owner, freelancer, or a growing enterprise, we can ensure that your TOT filings are handled professionally and in accordance with Kenyan tax laws.
By choosing us as your tax consultant, you will benefit from:
- Expert guidance on whether you qualify for TOT.
- Seamless registration on iTax.
- Timely reminders and assistance with monthly TOT filings.
- Minimization of the risk of penalties due to late filings or payments.
- Ongoing support in other areas of tax compliance and financial planning.
FAQs about Turnover Tax (TOT) in Kenya
What is Turnover Tax (TOT)?
Turnover Tax (TOT) is a tax imposed on businesses with an annual gross turnover exceeding Kshs. 1,000,000 but not more than Kshs. 25,000,000. It is payable at a rate of 1.5% of gross sales and is a final tax on income.
Who is eligible to pay Turnover Tax?
Any resident individual or company whose gross turnover falls between Kshs. 1,000,000 and Kshs. 25,000,000 per year is required to register and pay TOT. However, individuals or businesses earning more than Kshs. 5,000,000 must also register for VAT.
What is the deadline for filing and paying Turnover Tax?
TOT must be filed and paid by the 20th of the following month after the tax period ends. For instance, the TOT for January must be filed and paid by February 20th.
What happens if I file or pay my Turnover Tax late?
Late filing of TOT returns attracts a penalty of Kshs. 1,000 per month, while late payment incurs a 5% penalty on the unpaid tax and 1% interest per month on the outstanding tax.
Can I claim expenses or deductions under Turnover Tax?
No, TOT is calculated on the gross sales of the business, and no deductions or expenses are allowed. TOT is considered a final tax.
Must Read: