Kenya Revenue Authority has been on the forefront in engaging small traders (MSMEs) across the country on matters taxation. One of the concerns raised by MSMEs is the need for s simplified tax regime. 

Introduction of Turnover Tax

Effective January 2007, a simplified tax regime known as Turn over Tax (TOT) was introduced targeting  MSMEs with annual turnovers of below Kshs. 5M.  However due to the low uptake of the tax regime, TOT was dropped on 1st January 2019 but reintroduced on 1st January 2020 under revised TOT rules. 

Who should pay Turnover Tax?

Effective 25th April 2020, the Turnover threshold for TOT taxpayers was amended to a minimum of KES. 1,000,000 and maximum of KES. 50, 000,000 per annum. TOT rate was also reduced from 3% to 1% effective 25th April 2020.

This therefore means that, any resident person or corporate, whose gross turnover is between KES. 1,000,000 to KES. 50, 000,000 per year is required to register and pay for Turnover Tax. However, a taxpayer under this category may elect not to be under TOT but be under the Income Tax Regime by writing to the Commissioner. In addition, a Turnover Tax registered taxpayer dealing in vatable supplies and has an annual turnover of KES. 5,000,000 and above is required to register for VAT as well.

How to register for Turnover Tax

Registration for Turnover Tax is done online through the iTax platform. Once registered, the taxpayer is required to file monthly TOT returns and pay any tax due, on or before the 20th of the month following the tax period. Failure to which a penalty of Ksh. 1,000 per month will be imposed.

It is also worth noting that no expenses are allowed for deduction when computing turnover tax. TOT is charged at 1% on the gross sales and is a final tax, implying that a TOT taxpayer is not required to make any further declaration on the same income.

Turnover Tax Exemptions

A few categories are exempt from turnover tax, these include:

• Incomes exempted by law
• Employment income
• Rental income
• Management and professional services
• income subjected to withholding tax that is final tax, such as qualifying dividends or qualifying interests and
• TOT does not apply to non-resident taxpayers 

What are the benefits of Turnover Tax?

1. Reduced record keeping expenses because TOT registered taxpayers are only required to keep a daily gross sales records and daily purchase records.
2. No requirement to install the Electronic Tax Invoicing or Receipting System for those whose turnover is less than 5M.
3. Simplified filing and payment processes including payment through mobile phones via KRA M-service App.
4. Reduced time for filing and paying taxes
5. Turnover Tax is a final tax, one is not required to make any further declaration on the same income.