Turnover tax is the simplest way for a small business to pay income tax. You pay a flat percentage of your gross sales each month and do not need to compute profit. It suits many small shops and service providers, but it has limits and rules. This guide shows how to register on iTax and how to file each month.

Who can use it

Turnover tax is open to resident persons whose annual turnover from the business is between KES 1,000,000 and KES 25,000,000, and who are not excluded. Some categories cannot use it, including companies that carry on certain activities and the supply of professional or management services in some cases. You also cannot be registered for VAT on the same business. Read turnover tax for small businesses and compare using the turnover tax calculator and the sole trader vs company calculator. The rate is 3% of gross sales.

Is it the right choice?

Turnover tax is charged on gross sales, so a business with low margins can pay more than it would on profit. Example: sales of KES 1,000,000 and costs of KES 900,000. Turnover tax is KES 30,000 at 3 percent. Income tax on a profit of KES 100,000 would be lower, but only if you keep records and file the annual return. Businesses with high margins and few costs, such as services, often prefer turnover tax. See the turnover tax rate change.

Step 1: have a PIN and an iTax account

If you do not have them, see how to get a KRA PIN and how to register on iTax.

Step 2: add the turnover tax obligation

  1. Log in to iTax.
  2. Go to the registration menu and choose add tax obligation.
  3. Select Turnover Tax and set the effective date.
  4. Enter your business details, location and activity.
  5. Submit and wait for approval. Your profile will show the obligation once it is active.

Choosing the date: if you start in the middle of a year, you can register from the date you begin. If you are switching from income tax, you generally must do it from the start of the year. Make sure the old income tax obligations are handled correctly: how to update your KRA PIN details and add tax obligations.

Step 3: keep records of sales

Turnover tax is based on all the income from the business, including cash, M-Pesa and bank sales, before expenses. Record every sale. The turnover tax tracker and monthly sales tracker with targets total your monthly sales, and the daily takings and expenses log captures them as they happen. Include the cost of delivery charged to customers.

Step 4: file and pay by the 20th

  1. Log in and open the returns menu, choose file return and Turnover Tax.
  2. Select the period (the month).
  3. Enter the gross sales for the month.
  4. The system calculates the tax. Submit.
  5. Generate the payment slip and pay with the PRN by the 20th of the following month: how to pay KRA taxes with M-Pesa, bank and a PRN.

File even if there were no sales in the month, as a nil return: nil returns explained.

Penalties

The late filing penalty for turnover tax is KES 1,000 for each month, and the late payment penalty is 5 percent of the unpaid tax, plus interest of 1 percent a month. See penalty and interest rates and test with the KRA penalty calculator.

Things people get wrong

  • Entering profit instead of gross sales. The tax base is sales.
  • Ignoring M-Pesa sales that are not in the till. KRA can see mobile money data.
  • Mixing personal and business receipts. Keep them separate: separating business and personal money.
  • Exceeding the limit without registering for VAT or moving to income tax. Track sales against the limits.
  • Forgetting eTIMS invoices for buyers who need them: eTIMS and e-invoicing explained.

When your business grows

If your turnover goes above the upper limit, you must move to income tax and, if applicable, VAT registration. Plan ahead using the VAT registration checker and read how to register for VAT on iTax.

Annual return

Turnover tax is paid monthly. Check whether you still need to file an annual income tax return, for example if you have other income such as employment or rent. Ask KRA or your adviser which returns your obligations require.

Frequently asked questions

Can I deduct expenses under turnover tax? No. The tax is on gross sales with no deductions.

Can a company use turnover tax? Some companies qualify, subject to the rules and exclusions. Check the law or ask KRA.

Do I issue eTIMS invoices? Yes. Businesses should use the electronic system for sales invoices where required.

What if I started mid-month? File for the month with the sales from your start date.