The turnover tax has been reintroduced in Kenya by the KRA after the passage of the Finance act (2019).
Here is all you need to know about the turnover tax in Kenya.
Turnover tax definition
So, what is turnover tax (TOT)?
Well, in simple terms, TOT is a tax to be paid by small businesses with an annual gross sales value of not more than kshs.5 million.
This is a final tax meaning that you’re not supposed to file the VAT returns (done monthly) or even the annual income tax returns.
The TOT tax proposals were made in the Kenya budget 2019/2020 and all that was remained for it to be implemented was the passage of the said finance act.
Turnover tax Kenya : how much should you pay
Turnover tax is calculated at 3% of your gross sales (gross means you shouldn’t deduct any expenses from the sales amount aggregated in the applicable month).
To use an example, if you have made sales amounting to kshs. 50000 in January, your TOT will be 3% x 50000= shs1500.
Needless to say, you have to maintain an accurate sales record to facilitate the computation of TOT.
Relationship between presumptive tax in Kenya and the TOT
If you have been paying presumptive tax in Kenya, don’t worry.
You’ll still pay it as you apply for the renewal of your business permit at your local country government offices (at 15% of the business permit charge) but you should deduct the paid presumptive tax amount in later months when filing TOT.
Therefore, there is no double taxation as some have claimed after the TOT tax made a comeback.
Turnover tax : who should not pay
The following categories of businesses/individuals are not subject to TOT and presumptive taxes:
- Persons already registered for VAT.
- Employed people paying PAYE.
- Individuals paying rental income.
- Limited liability companies in Kenya.
- Professionals offering management and related services in Kenya.
Turnover tax Kenya: when are the due dates?
Now, the TOT is to be filed monthly. You’re to pay your due TOT by the 20th of the following month.
This means that the amount of TOT accrued in January is to be remitted to the KRA by the 20th of February and that of February by the 20th of March.
Turnover tax Kenya: when did it come into effect
The TOT come into force in January 2020. This means that traders were to start paying this tax to the taxman from 20th of February 2020.
Turnover tax Kenya: how to register
Those businesspeople affected by the TOT are expected to register for this tax on the KRA portal here.
You can do this from a cyber café or your phone.
Turnover tax Kenya: how to generate the TOT return and pay
You’re to log into the iTax portal and generate the monthly TOT return sheet every month before or on 20th.
Here is the procedure.
- Log in to itax.go.ke
- Go to the returns menu (up there) and click File turnover tax return.
- Complete the required details such as the month and the gross sales amount. The system will auto-calculate the due TOT amount (at 3%) and show it on the screen.
- Click Submit to file the return.
- Now go back to the top menu and select the Payment tab.
- Declare the amount you have filed in the space provided (the system may recall this automatically) and generate the payment slip.
- You can print the displayed payment slip and go to your bank to pay or follow the steps indicated on the slip to pay via KRA MPESA pay bill number 572572.
Tip: Remember to minus the already remitted presumptive tax amounts appropriately when filing your monthly TOT return until the whole prepaid amount has been set off.
Benefits of turnover tax for small businesses in Kenya
KRA has said that the TOT (christened the patriotism tax by the media) is meant to ease the taxation of SMEs in Kenya and is beneficial to this group of taxpayers in various ways.
Here are some of the advantages of turnover tax:
· Reduced expenses to business
You’ll no longer need to hire an accountant (to prepare complex accounting books) as the only required record is a sales journal.
And if you’re to recruit one, it can be part-time and at a smaller fee now that there’s not much bookkeeping work to do.
· Friendly filling/payment process
You can complete the entire filling and payment process using your phone from the comfort of your shop/business and within a couple of minutes.
I have already mentioned that it’s not a must for you to prepare complicated financial records for the purposes of this tax as it happens with annual income tax returns for example.
Besides, you don’t need to invest in an ETR like it’s the case with the VAT (the VAT act specifies that you must buy an ETR).
· TOT is relatively cheaper
The 3% TOT rate is considerably cheaper if you consider that it’s a final tax (you won’t pay the VAT or annual income tax as indicated previously)
Can I be exempted from paying the turnover tax in Kenya and the presumptive tax in Kenya?
If, for some reason, you want to be excluded from the TOT and the presumptive tax, you can write to the KRA Commissioner requesting for this favor.
If you table enough reasons, you’ll be exempted but you’ll be required to continue filing the monthly VAT as well as annual income tax returns.
Of course, people living with disabilities shall be exempted from this tax if they apply to the commissioner and provide supporting documentation including approval from the NCPWD (The National Council for Persons with Disabilities).
For clarification, get in touch with the KRA desk at your nearest Huduma centre or KRA office.
You can also contact KRA directly using the following details:
Contact center telephone number: 020 4 999 999
Mobile number: 0711 099 999