Turnover Tax (TOT)
Simplified tax system for small and medium enterprises. Pay 1% on monthly turnover instead of complex income tax calculations. Perfect for SMEs with annual turnover KSh 1M - 50M.
What is Turnover Tax?
Simplified tax system designed specifically for SMEs
Turnover Tax (TOT) is a simplified tax regime designed for small and medium enterprises with annual turnover between KSh 1 million and KSh 50 million. Instead of complex income tax calculations, eligible businesses pay a flat 1% on their monthly gross turnover, making tax compliance simple, predictable, and affordable for growing businesses.
Who Qualifies?
Small and medium enterprises with annual turnover between KSh 1M - 50M, excluding specified businesses like bars, professional services, and companies with liquor licenses.
Simple Calculation
Pay exactly 1% of your monthly gross turnover. No complex deductions, no varying rates, no quarterly installments - just straightforward percentage-based taxation.
Monthly Filing
File and pay by the 20th of every month via iTax portal. Simple online process with immediate confirmation and digital receipts for your records.
Compliance Benefits
Simplified record-keeping requirements, reduced compliance costs, and protection from complex income tax audits while maintaining good standing with KRA.
TOT Eligibility Checker
Quickly determine if your business qualifies for the simplified turnover tax system. Answer a few questions to get instant eligibility assessment.
Business Types & Eligibility
Detailed breakdown of eligible and excluded business categories
Turnover Tax vs Other Tax Systems
Compare TOT with alternative tax systems for SMEs
Tax System Comparison for SMEs
Choose the most suitable tax system for your business
| Tax System | Eligibility | Tax Rate | Filing Frequency | Record Keeping |
|---|---|---|---|---|
| Turnover Tax (TOT) | KSh 1M - 50M annual turnover | 1% of monthly turnover | Monthly (20th) | Simplified records |
| Presumptive Tax | Up to KSh 1M annual turnover | Fixed amount based on business type | Annual | Basic records |
| Corporation Tax | All companies | 30% of taxable profits | Annual + quarterly advance | Full accounting records |
| Individual Income Tax | Sole proprietors | 10% - 35% progressive | Annual | Detailed business records |
TOT Calculation Examples
| Monthly Turnover | TOT Due (1%) | Annual TOT | Effective Rate |
|---|---|---|---|
| KSh 100,000 | KSh 1,000 | KSh 12,000 | 1.0% |
| KSh 500,000 | KSh 5,000 | KSh 60,000 | 1.0% |
| KSh 1,000,000 | KSh 10,000 | KSh 120,000 | 1.0% |
| KSh 2,000,000 | KSh 20,000 | KSh 240,000 | 1.0% |
| KSh 4,000,000 | KSh 40,000 | KSh 480,000 | 1.0% |
TOT Benefits for SMEs
- Predictable Costs: Fixed 1% rate makes budgeting and cash flow planning easier
- Simplified Compliance: No complex profit calculations or quarterly payments
- Lower Compliance Costs: Reduced accounting and professional fees
- No Loss Carry-Forward: Pay based on turnover, not profit/loss calculations
TOT Filing & Payment Process
Monthly filing requirements and step-by-step process
Register for Turnover Tax
Apply for TOT registration through iTax portal if eligible. You'll need your KRA PIN, business registration documents, and bank account details for direct debit setup.
Track Monthly Turnover
Record all business income for the month including cash and credit sales. Maintain simple sales records showing dates, amounts, and customer details where applicable.
Calculate 1% TOT
Multiply your gross monthly turnover by 1% to determine tax due. No deductions allowed - calculation is based on total revenue before any expenses.
File Monthly Return
Log into iTax portal and file TOT return (form iTax TOT) by the 20th of the following month. Enter gross turnover amount and system calculates tax automatically.
Make Payment
Pay calculated TOT via bank, mobile money, or direct debit. Payment must be made by 20th of following month to avoid penalties and interest charges.
Maintain Records
Keep all sales records, payment confirmations, and TOT certificates for at least 5 years. Simple record-keeping requirements compared to other tax systems.
Important TOT Deadlines
Record Keeping for TOT
Simplified documentation requirements for turnover tax
Required Records
- Daily sales register or cash book
- Invoices and receipts issued to customers
- Bank statements and transaction records
- Monthly TOT returns and payment confirmations
- Business registration and license documents
- Supplier invoices for major purchases
Best Practices
- Record all transactions promptly and accurately
- Use sequential numbering for invoices/receipts
- Separate business and personal transactions
- Back up digital records regularly
- Store physical documents in organized manner
- Review records monthly before filing returns
Simplified vs Full Books
TOT Advantage: No need for complex double-entry bookkeeping or detailed profit & loss accounts.
Focus on: Accurate turnover recording rather than expense categorization and profit calculations.
Recommended Tools
- Simple cash book or sales register
- Receipt books with carbon copies
- Basic accounting software or spreadsheets
- Mobile apps for recording transactions
- Scanner or phone for document digitization
- Cloud storage for backup and access
Common TOT Issues & Solutions
Avoid these common mistakes and compliance problems
Underreporting Turnover
Failing to report all sales including cash transactions can lead to penalties, interest, and potential prosecution for tax evasion.
Solution: Implement systematic recording of all transactions and reconcile with bank deposits regularly.
Late Filing & Payment
Missing the 20th deadline attracts penalties of 25% of tax due or KSh 10,000 (whichever is higher) plus monthly interest.
Solution: Set up calendar reminders and consider direct debit arrangements for automatic payments.
Exceeding Turnover Threshold
Businesses exceeding KSh 50M annual turnover must migrate to corporation tax but often fail to notify KRA promptly.
Solution: Monitor annual turnover closely and notify KRA immediately when approaching the threshold.
Inadequate Record Keeping
Poor documentation makes it difficult to support turnover figures during KRA audits and can result in estimated assessments.
Solution: Maintain organized records with sequential numbering and regular reconciliations.
Frequently Asked Questions
Expert answers to common turnover tax questions
Can I switch from corporation tax to turnover tax?
Yes, if your business meets TOT eligibility criteria (turnover between KSh 1M-50M and not in excluded categories), you can apply to migrate from corporation tax to turnover tax. Submit an application through iTax portal and wait for approval before switching. The change typically takes effect from the beginning of the next tax period.
What happens if my turnover exceeds KSh 50 million?
Once your annual turnover exceeds KSh 50 million, you must migrate to corporation tax within 30 days of exceeding the threshold. Notify KRA immediately and start preparing for corporation tax compliance including quarterly advance tax payments and annual returns with audited accounts.
Do I need to charge VAT if I'm on turnover tax?
VAT registration is required if your annual turnover exceeds KSh 5 million, regardless of whether you're on turnover tax. TOT and VAT are separate obligations. If VAT-registered, you must charge 16% VAT on taxable supplies and file monthly VAT returns in addition to TOT returns.
Can I claim expenses or deductions under turnover tax?
No, turnover tax is calculated on gross turnover without any deductions for expenses. This is the trade-off for the simplified system - you pay 1% on total revenue but don't need to maintain detailed expense records or calculate net profits. The system is designed for simplicity over tax optimization.
What if I have multiple business activities?
If you have multiple business activities, all must be eligible for TOT for you to qualify. If any activity is excluded (e.g., you have both a restaurant and offer professional consultancy), you cannot use turnover tax and must use corporation tax or individual income tax for all activities.
How do I handle seasonal businesses under TOT?
For seasonal businesses, you pay TOT monthly based on actual turnover for each month. During low/off seasons with minimal turnover, your TOT will be correspondingly low (1% of actual monthly turnover). You must still file monthly returns even if turnover is zero for certain months.