In the realm of Kenyan taxation, Turnover Tax in Kenya (TOT) provides a streamlined mechanism for resident businesses with specific turnover thresholds. Administered under the Income Tax Act, this tax regime ensures compliance through straightforward calculations based on gross sales. This article outlines the core elements of Turnover Tax in Kenya, drawing directly from established provisions to assist business owners in maintaining fiscal accuracy.
What Is Turnover Tax?
Turnover Tax (TOT) is charged on the gross sales generated by qualifying businesses, as stipulated in Section 12(c) of the Income Tax Act.
Key features include:
- It applies exclusively to resident persons engaged in business activities.
- Eligibility is determined by gross turnover exceeding KES 1,000,000 but not surpassing KES 25,000,000 in any given year.
This structure simplifies tax administration for eligible entities, focusing solely on gross receipts without adjustments for operational costs.
What Is the Rate of Turnover Tax in Kenya?
The Turnover Tax rate is set at 1.5% applied to gross sales. Notable aspects of the rate:
- Expenses incurred are not deductible.
- Turnover Tax in Kenya is final tax.
Due Date for Turnover Tax in Kenya
Turnover Tax is a monthly obligation, with the following filing and payment requirements:
- The due date for both filing the return and remitting the tax falls on the 20th day of the month succeeding the tax period.
- For example, TOT obligations for a given month must be addressed by the 20th of the subsequent month.
Exemptions from Turnover Tax
Certain income categories are expressly excluded from Turnover Tax. Incomes exempt from TOT in Kenya include:
- Persons with business income below KES 1M or above KES 25M.
- Rental income.
- Management, professional services, or training fees.
- Any income that is subject to final withholding tax under applicable laws.
Penalties for Non-Compliance
The Tax Procedures Act (TPA) provides for penalties for non-compliance to key TOT obligations as follows;
- Late filing incurs a penalty of KES 1,000 per month, pursuant to Section 83(1)(b) of TPA.
- Late payment attracts a 5% levy on the tax due, as per Section 83A of TPA.
- Unpaid tax accrues interest at 1% per month on the principal amount outstanding, in accordance with Section 38 of the TPA.
Ensuring Turnover Tax Compliance
Turnover Tax in Kenya offers an efficient framework for eligible resident businesses, emphasizing monthly reporting and a fixed rate on gross sales. By grasping these provisions, enterprises can navigate their obligations effectively. For tailored consultations on Turnover Tax matters, FNJ & Associates stands ready to provide professional support. Contact our team to ensure your business remains aligned with regulatory requirements.