Turnover Tax (TOT) is a simplified tax system in Kenya designed for small and medium-sized businesses. If you’re running a business with a turnover between Kshs 1 million and Kshs 50 million annually, you’re required by law to file and pay TOT. This guide provides a comprehensive walkthrough on how to file TOT returns, the tax rates, penalties for non-compliance, and tips to ensure you remain compliant with the Kenya Revenue Authority (KRA).
What Is Turnover Tax (TOT)?
Turnover Tax (TOT) is a tax levied on the gross sales of a business, as stipulated in Section 12(c) of the Income Tax Act. Initially introduced in 2006, TOT was replaced by Presumptive Income Tax in 2018 but reintroduced in 2019 through the Finance Act.
The tax is designed to simplify tax compliance for small and medium-sized enterprises (SMEs) by focusing on gross sales rather than net income or profits.
Who Qualifies for TOT?
TOT applies to resident businesses in Kenya with an annual gross turnover of:
- Above Kshs 1 million
- Not exceeding Kshs 50 million
However, TOT does not apply to the following types of income:
- Rental income
- Management, professional, or training fees
- Income subject to final withholding tax under the Income Tax Act
Important Note: Businesses earning below Kshs 1 million or above Kshs 50 million annually are not eligible for TOT. Such businesses fall under different taxation categories.
TOT Tax Rate
- TOT is charged at a flat rate of 1% on gross monthly sales.
- No expenses are deductible, making it a straightforward final tax.
- This tax is final, meaning the income is not subjected to additional taxation once the TOT is paid.
Penalties for Non-Compliance
Failure to comply with TOT requirements can result in severe penalties:
- Late Filing Penalty: Kshs 1,000 per month or 5% of the tax due, whichever is higher.
- Late Payment Penalty: 5% of the unpaid tax amount.
- Interest on Unpaid Tax: Charged at 1% per month on the principal tax owed.
To avoid these penalties, ensure you file and pay TOT on or before the 20th day of the following month.
Step-by-Step Guide to Filing TOT Returns
Follow these steps to file your TOT returns efficiently:
Step 1: Log in to iTax
- Visit the KRA iTax portal at https://itax.kra.go.ke/KRA-Portal/.
- Enter your PIN and password, then click “Login.”
Step 2: Add TOT Obligation
- Navigate to the Registration menu and select Amend Taxpayer Details.
- Add the Turnover Tax (TOT) obligation to your profile if not already registered for TOT.
- Submit the changes and wait for KRA approval.
Step 3: Access the TOT Return
- Once logged in, go to the Returns menu and select File Return.
- Choose the Turnover Tax (TOT) option.
- Download the TOT Excel return form provided.
Step 4: Fill Out the TOT Return Form
- Open the downloaded Excel form.
- Enter your gross sales for the month in the relevant fields.
- Ensure all fields are filled accurately to avoid rejection upon submission.
Step 5: Upload the Completed Return
- Save the completed Excel file.
- Return to the iTax portal and upload the form in the File Return section.
- Submit the return and note the acknowledgment receipt.
Step 6: Generate a Payment Slip
- Go to the Payment Menu on iTax.
- Select Payment Registration, then choose TOT as the tax head.
- Enter the amount payable (1% of your gross sales).
- Generate the payment slip.
Step 7: Make Payment
- Use the generated payment slip to make your payment through:
- M-Pesa: Paybill Number 572572 (Account Number: Enter the generated payment slip number).
- Partner Banks: Payments can also be made at any KRA partner bank.
Important Considerations
- Monthly Filing and Payment: TOT returns and payments must be made monthly. The deadline is on or before the 20th of the following month.
- Voluntary Opt-Out: If your business turnover falls within the TOT threshold but you choose not to register, you will be deemed to have opted out by not registering for TOT. Ensure you notify the Commissioner in writing if you wish to make such a decision.
Benefits of Complying with TOT
- Simplified Tax Process: TOT eliminates the need to calculate expenses, making it easier for small businesses to comply.
- Cost-Effective: The flat 1% tax rate is lower compared to other tax categories.
- Avoid Penalties: Timely filing ensures you avoid fines and legal issues.
- Boosts Business Credibility: Compliant businesses build trust with clients, suppliers, and lenders.
Common Challenges and How to Overcome Them
- Lack of Awareness: Many small businesses are unaware of their TOT obligations. Stay informed by subscribing to KRA updates and consulting tax professionals.
- Technical Issues: The iTax platform can occasionally experience downtime. File your returns early to avoid last-minute complications.
- Record Keeping: Accurate records of sales are crucial. Use digital tools or accounting software to track your gross sales efficiently.
FAQs About TOT Filing
- What happens if I miss the TOT filing deadline? Late filing and payment attract penalties and interest. File as soon as possible to minimize charges.
- Can I deduct expenses when calculating TOT? No, TOT is based on gross sales, and no deductions are allowed.
- What if I don’t have any sales for the month? File a nil return if your business has no sales during a specific month.
Filing Turnover Tax (TOT) in Kenya is straightforward when you understand the process and deadlines. By staying compliant, you not only avoid penalties but also build your business’s reputation as a responsible taxpayer. Ensure you maintain accurate records of your gross sales and file your returns before the 20th of each month.
If you’re unsure about any aspect of TOT, consult a tax professional or visit the nearest KRA office for assistance.
Ready to file your TOT returns? Visit the KRA iTax portal today and ensure your business remains compliant.
