Turnover Tax in Kenya: The 2026 Complete Guide for Small Businesses

By FNJ & Associates | 17 July 2026 |

What is turnover tax in Kenya?

Turnover tax in Kenya (TOT) is a simplified tax charged at 1.5% on the gross sales of qualifying small businesses, under Section 12C of the Income Tax Act, Cap 470. It applies to resident persons – individuals and companies – whose gross turnover from business exceeds KES 1,000,000 but does not exceed, and is not expected to exceed, KES 25,000,000 in any year of income. TOT is a final tax: once paid, no further income tax arises on that business income, and the taxpayer is not required to file a year-end income tax return in respect of it.

The regime exists to keep tax compliance proportionate for small businesses. Instead of maintaining full accounting records, computing taxable profit, and filing an annual return, a TOT-registered trader keeps daily records of gross sales and purchases, files a short monthly return, and pays 1.5% of the month’s gross sales. Turnover tax in Kenya sits alongside the other tax obligations described in FNJ’s guide to the types of taxes in Kenya, and the Finance Act, 2026 left the TOT rate and band unchanged – the figures in this article are current as at the last updated date above.

Who qualifies for turnover tax in Kenya?

Eligibility for turnover tax in Kenya is defined by residence and turnover. Any resident person – whether trading as an individual, a partnership, or a company – qualifies where gross turnover from business is more than KES 1,000,000 but does not exceed KES 25,000,000 in a year of income. Non-resident taxpayers are excluded from the regime entirely and are taxed under the ordinary provisions of the Income Tax Act.

Qualification is not compulsory in one direction: a person who qualifies may elect, by notice in writing to the Commissioner, not to be taxed under TOT, in which case the normal income tax provisions apply. This election matters for businesses with thin margins. TOT is charged on gross sales with no deduction for expenses, so a business operating at a 3% net margin would pay 1.5% of turnover under TOT – equivalent to half its entire profit – against 30% of profit (0.9% of turnover) under the normal corporate regime. As a rule of thumb, businesses with net margins below about 5% should model both regimes before registering, and FNJ runs this comparison as part of its TOT advisory.

What is the rate of turnover tax in Kenya?

The turnover tax in Kenya rate is 1.5% of gross sales, effective from 1 July 2023 under the Finance Act, 2023, and confirmed unchanged by the Finance Act, 2026. Three features of the rate define the regime. First, it applies to gross receipts: no expenses, losses, or capital allowances are deductible. Second, it is a final tax: income taxed under TOT is not declared again on any annual return. Third, it is charged monthly on the sales of each tax period, not annually.

A worked example: a hardware shop with gross sales of KES 800,000 in March owes TOT of KES 12,000 (1.5% of 800,000), filed and paid by 20 April. If sales in April fall to KES 500,000, the April TOT is KES 7,500, due by 20 May. In a month with no sales at all, the trader files a nil TOT return by the 20th – the filing obligation continues every month until the taxpayer deregisters or exits the regime.

How does turnover tax in Kenya interact with VAT and eTIMS?

TOT replaces income tax on qualifying business income; it does not replace VAT or the electronic invoicing obligation. A TOT-registered taxpayer dealing in vatable supplies whose turnover reaches KES 5,000,000 or more is required to register for VAT as well, charging output VAT at 16% and filing monthly VAT3 returns alongside the TOT return. Because the TOT band runs to KES 25 million while the VAT registration threshold sits at KES 5 million, a large share of TOT businesses carry both obligations – a point that surprises many traders who assume TOT is the only tax they file.

Separately, every business issuing invoices in Kenya must transmit them through eTIMS, regardless of size or VAT status. TOT businesses using an ERP can integrate through the OSCU route – FNJ implements this on Zoho Books – while low-volume traders can use eTIMS Online on the KRA portal. Invoices not transmitted through eTIMS are not allowed as deductible expenses for the customer, so non-compliant invoicing quickly costs a TOT business its commercial customers.

How do you register for turnover tax in Kenya?

Registration for turnover tax in Kenya is done online through iTax. Log in at itax.kra.go.ke with the KRA PIN and password, open the Registration module, and select Amend PIN Details. Under Section A (basic information), answer Yes to the question on registering for TOT. Under Section B (obligation details), select the TOT registration date and submit the application. Once the obligation is active, the monthly TOT return appears under the Returns menu.

Deregistration follows the same amendment route where the business ceases trading, falls below the KES 1 million floor, exceeds the KES 25 million ceiling, or elects out of the regime in writing. Until the obligation is formally removed, the monthly filing requirement – including nil returns – continues, and unfiled months accumulate penalties.

When is turnover tax in Kenya due?

Turnover tax in Kenya is a monthly obligation. Both the return and the payment are due by the 20th day of the month following the tax period: March TOT is due by 20 April, April TOT by 20 May, and so on. Filing is done on iTax – under the Returns menu, select File Return, choose Turnover Tax, download the Excel return, complete it, and submit. Payment is made by generating a payment slip under the payments menu and paying through a KRA-appointed bank, M-PESA, or the KRA M-Service App, which also supports filing for straightforward cases.

The TOT deadline shares the 20th with VAT, Monthly Rental Income, and excise duty – see FNJ’s Tax Calendar in Kenya for the complete monthly, quarterly, and annual deadline picture. Building the TOT return into the same monthly close routine as VAT keeps both filings accurate and on time.

What income is exempt from turnover tax in Kenya?

Certain income categories sit outside the turnover tax in Kenya regime even where the earner’s turnover falls within the band. TOT does not apply to rental income, which is taxed under the Monthly Rental Income regime or the annual return depending on the amounts involved; to management fees, professional fees, or training fees, which fall under the ordinary income tax and withholding tax rules; or to any income already subject to a final withholding tax under the Income Tax Act, such as qualifying dividends and qualifying interest.

Persons whose business income falls outside the band – below KES 1,000,000 or above KES 25,000,000 – are not eligible for TOT and are taxed under the ordinary provisions. Non-residents are excluded regardless of turnover. A business with mixed income streams, for example a consultant who also runs a shop, applies TOT only to the qualifying trading income while the consultancy fees remain under the normal regime – a split that requires clean record-keeping to defend in a KRA review.

What are the penalties for late turnover tax in Kenya?

The Tax Procedures Act, 2015 sets the penalty framework for turnover tax in Kenya. Late filing of a TOT return attracts a penalty of KES 1,000 for each month the return remains outstanding. Late payment attracts a penalty of 5% of the tax due, and unpaid tax accrues interest at 1% per month on the outstanding principal until settlement. Because the filing obligation is monthly and includes nil returns, a dormant trader who stops filing quietly accumulates KES 1,000 per month indefinitely – one of the most common surprises FNJ encounters when onboarding small business clients.

Taxpayers carrying accumulated TOT penalties should note that the Finance Act, 2026 reinstates the tax amnesty on interest, penalties, and fines for periods up to 31 December 2025, provided the principal tax is settled on or before 31 December 2026. For traders with years of unfiled nil returns or unpaid TOT, the amnesty window is the cheapest route back to compliance, and FNJ assists with the cleanup filings and the amnesty application.

What are the benefits of turnover tax in Kenya?

For qualifying businesses, turnover tax in Kenya offers real advantages over the ordinary regime. Record-keeping is reduced to daily gross sales and purchases records rather than full books of account. The monthly return is short and can be filed and paid from a phone through the M-Service App. TOT is a final tax, so no year-end income tax return is required on the TOT income, removing the annual filing season from the trader’s calendar for that income. And the flat 1.5% makes the tax cost predictable as a fixed share of sales.

The regime is not automatically the cheapest option, however. High-margin businesses generally save under TOT; thin-margin businesses can pay more than they would under the normal regime, which is why the written election out exists. The decision should be modelled annually as margins change, and revisited whenever turnover approaches either end of the band.

How FNJ & Associates supports turnover tax in Kenya compliance

FNJ & Associates provides affordable, end-to-end turnover tax in Kenya support for small businesses across the East African Community: TOT registration and deregistration on iTax, monthly return preparation and filing, nil return cleanup for lapsed filers, penalty and amnesty applications, the TOT versus normal regime comparison for thin-margin businesses, VAT dual-registration where vatable turnover crosses KES 5 million, and eTIMS-compliant invoicing setup through Zoho Books or eTIMS Online.

The firm’s tax team draws on 20+ professionals holding CPA, CISA, CFE, CIA, CEH, and CAMS credentials with an average of 12+ years of practice, serving 100+ organisations in English, French, and Swahili. TOT filing is included as a standard inclusion in FNJ’s outsourced bookkeeping retainers for qualifying clients. To schedule a TOT compliance consultation, visit fnjassociates.co.ke and use the contact us page.

Frequently Asked Questions

What is the turnover tax rate in Kenya?

The turnover tax in Kenya rate is 1.5% of gross sales, effective 1 July 2023 under the Finance Act, 2023 and confirmed unchanged by the Finance Act, 2026. No expenses are deductible, and the tax is final – income taxed under TOT is not declared again on an annual return.

Who qualifies for turnover tax in Kenya?

Any resident person – individual, partnership, or company – with gross business turnover above KES 1,000,000 but not exceeding KES 25,000,000 in a year of income qualifies for turnover tax in Kenya. Non-residents are excluded. A qualifying person may elect out of TOT by written notice to the Commissioner, in which case normal income tax provisions apply.

When is turnover tax in Kenya due?

The TOT return and payment are both due by the 20th day of the month following the tax period – March TOT by 20 April, April TOT by 20 May, and so on. A nil return must be filed in any month with no sales, and the monthly obligation continues until the taxpayer formally deregisters on iTax.

Is turnover tax in Kenya a final tax?

Yes. Turnover tax in Kenya is a final tax on the qualifying business income. Once the monthly TOT is paid, no further income tax arises on that income and no year-end income tax return is required in respect of it. Record-keeping is reduced to daily gross sales and purchases records.

Does a TOT-registered business also pay VAT?

It can. TOT replaces income tax, not VAT. A TOT-registered taxpayer dealing in vatable supplies with turnover of KES 5,000,000 or more must also register for VAT, charge output VAT at the appropriate rate, and file monthly VAT3 returns alongside the TOT return. All TOT businesses must also issue eTIMS-compliant invoices regardless of VAT status.

What are the penalties for late TOT filing in Kenya?

Late filing of a turnover tax in Kenya return attracts KES 1,000 per month, late payment attracts 5% of the tax due, and unpaid tax accrues interest at 1% per month, all under the Tax Procedures Act, 2015. The Finance Act, 2026 amnesty waives penalties and interest for periods up to 31 December 2025 where the principal is settled by 31 December 2026.

Can FNJ & Associates manage turnover tax in Kenya for my business?

Yes. FNJ handles TOT registration, monthly filing, nil return cleanup, amnesty applications, the TOT versus normal regime comparison, VAT dual-registration, and eTIMS invoicing setup. TOT filing is included in FNJ’s outsourced bookkeeping retainers for qualifying clients. Visit fnjassociates.co.ke to schedule a consultation.

This article is provided for general information purposes only and does not constitute professional tax, legal, or financial advice. Tax legislation in Kenya changes frequently, and the rates and rules described here reflect the position as at the last updated date shown above. Readers should not act on the contents without obtaining specific advice from a qualified professional. FNJ & Associates accepts no liability for any loss arising from reliance on this article.