What turnover tax actually is
Turnover tax, or TOT, charges you on what you sell rather than on what you earn. It is set out in section 12C of the Income Tax Act, and KRA charges it at 1.5% of gross sales, effective 19 March 2024.
Two things follow from "gross sales".
First, no expenses are allowed. Rent, stock, wages, transport, your loan interest — none of it reduces the figure you pay on. If your shop banks KES 400,000 in a month, you pay KES 6,000, whether that month was profitable or not.
Second, it is a final tax. Once you have declared and paid turnover tax on that income, you are not required to file an annual income tax return on it. For a trader who dreads the June rush, that alone is worth something.
Who qualifies
You are eligible if you are a resident person or company whose gross turnover for the year is more than KES 1 million and not more than KES 25 million. The test looks at what you expect to make, not only at what you made last year, so a business growing quickly should watch the ceiling.
If you turn over KES 1 million or less, you fall outside turnover tax and file the ordinary income tax return instead. If you cross KES 25 million, you move to the normal regime — graduated rates for a sole trader, 30% corporation tax for a company.
Who is shut out, whatever their turnover
Turnover tax does not apply to:
- Rental income — residential rent has its own monthly regime
- Management, professional or training fees — so consultants, lawyers, trainers, engineers and accountants are excluded on that income
- Income already subject to a final withholding tax, such as qualifying dividends and qualifying interest
- Non-resident taxpayers
The professional-fees exclusion catches people out more than any other. A consultancy billing KES 4 million a year is squarely inside the turnover band and still cannot use turnover tax. A hardware shop billing the same amount can.
You can also choose to opt out
Eligibility is not conscription. You may write to the Commissioner electing not to be taxed under turnover tax, in which case the rest of the Income Tax Act applies to you in the normal way. If you do nothing and simply never register, KRA treats that as your election. Whether opting out is wise depends on your margin, which is the next section but one.
How it works in practice: a worked example
Wanjiru runs a hardware shop. Her sales are seasonal, heavier when people are building after the rains, and she expects about KES 4.8 million for the year. That puts her inside the band.
Her first quarter looks like this.
| Month | Gross sales (KES) | Turnover tax at 1.5% (KES) | File and pay by |
|---|---|---|---|
| January | 380,000 | 5,700 | 20 February |
| February | 410,000 | 6,150 | 20 March |
| March | 520,000 | 7,800 | 20 April |
| Quarter total | 1,310,000 | 19,650 |
Across a full year at that run rate she pays about KES 72,000. Notice that March was her best month and also her most expensive — the tax moves with sales, not with profit. In a month where she discounts hard to clear old stock, she still pays 1.5% of whatever came through the till.
If you are also registered for VAT, agree with your tax adviser how output VAT is treated in the turnover figure you declare, before you file.
Registering
Registration is done on iTax. Log in, open the Registration module, select Amend PIN details, answer yes to the turnover tax question under basic information, choose your registration date under obligation details, and submit.
Filing and paying
The return and the payment are both due on or before the 20th day of the month following the tax period. January's tax is due by 20 February.
There are three ways to file: the simplified TOT return on iTax, the downloadable Excel return, or the KRA M-Service app on your phone. Payment is by bank slip, or through M-PESA paybill 222222 using the payment registration number on your slip as the account number.
What it costs you to be late
| Failure | Charge |
|---|---|
| Filing the return late | KES 1,000 |
| Paying late | 5% of the tax due |
| Leaving tax unpaid | 1% interest per month or part month |
These stack. A small trader who ignores turnover tax for a year does not owe twelve times the tax — they owe the tax, plus twelve filing penalties, plus the 5%, plus accumulating interest. It is one of the cheapest compliance obligations in Kenya to get right and one of the easiest to let drift.
Turnover tax or normal income tax: which is cheaper?
Because turnover tax ignores your costs, the answer turns entirely on your margin. A thin-margin business pays turnover tax on money it never kept. A fat-margin business pays less than it would on profit.
Here is Wanjiru again, at KES 4.8 million of sales, compared across different net margins. The income tax column uses the resident individual bands and the KES 28,800 annual personal relief, and assumes she has no other income.
| Net profit margin | Annual profit (KES) | Income tax on profit (KES) | Turnover tax (KES) | Cheaper route |
|---|---|---|---|---|
| 5% | 240,000 | 0 | 72,000 | Income tax |
| 8% | 384,000 | 24,000 | 72,000 | Income tax |
| 10% | 480,000 | 52,600 | 72,000 | Income tax |
| 12% | 576,000 | 81,400 | 72,000 | Turnover tax |
| 15% | 720,000 | 124,600 | 72,000 | Turnover tax |
| 20% | 960,000 | 196,600 | 72,000 | Turnover tax |
At this level of sales the crossover sits at a net margin of roughly 11%. Below that, Wanjiru is better off on the normal regime. Above it, turnover tax saves her money and a good deal of paperwork.
The crossover moves with your turnover. At KES 3 million of sales it sits around 15%, because the personal relief and the 10% band cover more of a smaller profit. At KES 10 million it drops to about 8%.
For a limited company the maths is blunter. Corporation tax is 30% of profit with no personal relief, so turnover tax wins as soon as net margin passes 5%. Most trading companies clear that comfortably.
The cost of the other route is not only tax
Staying on the normal regime means proper books, a tax computation, instalment tax during the year and an annual return. From 1 January 2027, individuals and the self-employed must file that return by 30 April, not 30 June — the Finance Act 2026 moved the deadline forward. Companies still file by the end of the sixth month after their year end.
For a trader with good margins and no appetite for all that, turnover tax is a reasonable trade. For a supermarket or a distributor running on 4% net, electing out and keeping real books is usually the cheaper answer.
What turnover tax does not replace
This is where the "simplified" label misleads people. Turnover tax settles your income tax on that business income. It settles nothing else.
| Obligation | When it applies to you | Deadline |
|---|---|---|
| VAT | Your taxable supplies reach KES 5 million a year. Registration is compulsory at that point, voluntary below it | Monthly, by the 20th |
| PAYE and statutory deductions | You employ anyone, including one shop assistant | By the 9th of the following month |
| Withholding tax | You pay rent, professional fees, commissions or similar amounts from which tax must be deducted | By the 20th of the following month |
| Electronic tax invoicing (eTIMS) | Your turnover is KES 5 million or more. KRA's turnover tax guidance states that businesses under that figure are not required to install it | Invoice by invoice |
| County single business permit | You trade in a county | Annually, county by county |
Two of these catch small traders repeatedly.
The VAT line. A business on turnover tax can comfortably be above the VAT threshold — the bands overlap by KES 20 million. Crossing KES 5 million in taxable supplies means registering for VAT and filing monthly returns on top of your turnover tax returns.
The payroll line. Hiring your first employee brings PAYE, SHIF, NSSF, the Affordable Housing Levy and the NITA levy with it, each with its own base and its own deadline. Our guide to statutory deductions for employers works through a full payslip.
You still have to keep records
Turnover tax reduces your record-keeping, it does not remove it. KRA expects turnover tax taxpayers to keep daily gross sales records and daily purchase records, and the Tax Procedures Act requires tax records to be kept for five years. If KRA ever questions the sales you declared, those daily records are the whole of your defence.
Six mistakes that cost real money
- Using a rate you found online. The regime has been at 3%, then 1%, then back to 3%, and is now 1.5%. Older pages — including some still live on KRA's own site — carry the earlier figures and the old KES 50 million ceiling. Work from the current guidance, not from the first search result.
- Declaring net sales instead of gross. Turnover tax is charged on gross receipts. Deducting your purchases before applying 1.5% understates the tax and creates an exposure that grows month by month.
- Registering when you are excluded. Consultants, trainers and other professionals cannot put their fee income under turnover tax, however small the practice. Registering anyway does not make the income eligible.
- Treating it as a cover-all. Turnover tax is a final tax on that income only. VAT, PAYE and withholding tax carry on exactly as before.
- Skipping the return in a quiet month. If you are registered, you file every month, including months with nothing to declare. A missed return is KES 1,000 whether or not there was tax.
- Sailing past KES 25 million without noticing. The test includes what you reasonably expect to earn. A business that can see the ceiling coming should plan the move to the normal regime — and the books that go with it — before it arrives, not afterwards.
Not sure which regime you should be in?
The choice between turnover tax and the normal income tax regime is a straightforward calculation once someone has your real sales and your real margin in front of them. Getting it wrong costs you either in tax or in penalties, and both compound quietly.
Uwazi Consulting works with small and growing businesses on exactly this: checking which regime fits, registering or electing out on iTax, filing monthly returns on time, and tidying up where returns have been missed. We are based in Nairobi and work with clients across the country.
Talk to us about your tax position and we will tell you plainly which side of the line your business sits on.