Kenya Revenue Authority (KRA) has, in order to widen the tax net, simplify tax computation and increase compliance, introduced two new taxes, Turnover Tax (TOT) and Presumptive Tax (PT). Turnover Tax is the final tax, and, therefore, there is no need to file monthly VAT returns and the annual income tax returns.
Presumptive Tax is an advance payment meant to help the government to widen the tax net and improve its cash flow position.
The two taxes are meant to ensure that all businesses are captured by KRA, especially by tapping the informal sector.
What is Turnover Tax (TOT)?
TOT is payable by small businesses, whose gross sales do not or are not expected to exceed Ksh5 million a year.
Applicable rate and basis Three percent of the gross sales payable by the 20th day of the following month. The requirement is to keep records of gross daily sales.
Effective date-1st January 2020
What is Presumptive Tax (PT)?
Like TOT, it is for small businesses whose gross sales does not exceed or are not expected to exceed Ksh5 million per year.
Effective date-1st January 2019
Applicable rate– Fifteen percent of the business permit fee or licence payable when acquiring or renewing a business permit or a trade licence at the county government.
Is there double taxation when paying both TOT and PT?
No. PT is an advance tax that you recover from the TOT in the subsequent months.
Businesses excluded from TOT and PT
Turnover and presumptive taxes do not apply to the following:
- Person registered for VAT;
- Employment income;
- Rental income;
- Limited liability companies, and
- Management and professional services.
Qualifying persons seeking exemptions
A person, who qualifies to pay TOT and PT but wishes not to, must apply to the commissioner in writing and thus continue filing monthly VAT returns and the annual income tax return. A good case for seeking exemption is where the business is loss making and the new taxes are an additional burden. However, before applying for exemption, it is important to weigh the amount payable against the administration cost of preparing and filing tax returns in deciding the best course of action.
Registration and filing
Registration is through iTax or mobile.
Step 1. Login into www.itax.go.ke
Step 2. Select file turnover tax, under the returns menu, complete the return and submit. Thereafter, go to the payment menu, select payment, indicate the amount payable, generate the payment slip and pay by following the steps on the slip.