Turnover tax (TOT) in Kenya is tax on the income of small businesses with income less than kshs 5,000,000 turnover per year and more than kshs 500,000 turnover per year.

However, TOT is not applicable to all persons with less than kshs 5,000,000 turnover per year.

There are some business that though they have turnover of less than kshs 5,000,000, they are not taxed under TOT. Examples are services suppliers such as consultancies, training services, etc. This tax system was introduced effective 1st January 2008. The tax system was introduced to enable taxpayers with low annual turnover comply with the requirements of Income Tax Act Cap 470 in Kenya.

Reasons for introducing the tax

There were many reasons for introducing TOT. However, the main reason for introducing the tax system was simplify tax business for the taxpayers with low turnovers. The simplicity introduced by turnover tax was in:

• Compliance.
• Record keeping.
• Computations.
• Remittances
• Returns filing.

Income Exempted from TOT

The following incomes are exempted from TOT.

• Employment income.
• Exempt income according to Income Tax Act Cap 470 Laws of Kenya.
• Rental income.
• Service income from professional, technical, management, training and construction services.
• Limited liability companies’ incomes.
• Income below kshs 500,000.
• Taxpayers with approval from the Commissioner to remain under normal income tax) is excluded.

Business Subject to TOT

There are very many businesses that are subject to TOT. The following are some of the businesses that are subject to TOT.

• Kiosk operators.
• Small traders (cloth importers, saloon operators, hardware sellers).
• Small restaurants.
• Farmers (milk, maize, wheat, vegetable, coffee, tea, etc.)
• Quarry material traders.
• Construction material traders
• Maize roasters.
• Water sellers.
• Egg hawkers.

Taxable Amount

TOT is on the gross sales for specified tax period.

Tax period

The tax period for turnover tax is three month. The tax is accounted for on quarterly basis.

Deductible Expenses

Under TOT, there are no expenses allowed. The gross sales are subjected to the tax rate. Capital expenditures are also not allowed.

Tax Rate

The tax rate under TOT in Kenya is 3 % of gross amount.

TOT Due Dates

TOT is paid on a quarterly basis (3 months) starting 1st January each year. Tax is paid by 20th of month following end of the quarter by the registered taxpayer to KRA.

Tax Returns

Quarterly tax returns are made by 20th of month following end of quarter. There are no annual tax returns.

Tax Records to Maintain

There are various records that the taxpayers is expected to maintain during their business operations. The following are some of the records:

1. Sales records

• Invoices and cash sale receipts.

• Delivery notes.
• ETR records.
• Stock records.
• Sales ledgers.

1. Purchase Records

• Purchase invoices.
• Purchase cash receipts.
• Petty case purchases.
• Purchase ledgers.

Payment Details

• Bank Details.
• Cash deposit receipts.
• Mpesa or any other electronic money transfer statements.
• Cheque counterfoils.

Is TOT a Final Tax?

Yes. TOT is a final tax.