Turnover Tax (TOT)

TAXATION FOR SMALL TRADERS 19/02/2020

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 Tax (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.