Turnover tax, often called TOT, is a simple tax for small businesses. Instead of working out profit and claiming expenses, you pay a flat percentage of your gross sales. For many traders and service providers it replaces a complicated annual calculation with one monthly payment.

The rate and who qualifies

From 1 July 2023 turnover tax is 3% of gross sales (it was 1% before). It is available to resident businesses whose annual turnover is between KES 1 million and KES 25 million. Three groups cannot use it:

  • Businesses with annual turnover above KES 25 million
  • Professional and management services such as consultancy, legal, medical and accounting work
  • Income already taxed by a final withholding tax, and rental income

The turnover tax calculator checks your eligibility and the tax due from your monthly or yearly sales.

How it works in practice

Say a shop sells KES 600,000 in a month. Turnover tax is 3% of 600,000, which is KES 18,000. You do not subtract the cost of stock, rent or wages. That is the key trade-off: the tax is simple, but you pay on sales even in a month with a loss.

Returns and payment are due by the 20th of the following month, through iTax. A month with no sales still needs a return; read nil returns explained.

Turnover tax or normal income tax?

Turnover tax is cheaper than income tax when your costs are small compared with your sales, such as for a service business with few expenses. It costs more when your profit margin is thin. A retailer with a 5% margin pays 3% of every sale, which is more than half of the profit.

Compare the two with the sole trader versus company calculator, and read freelancer and creator tax if you earn from online platforms.

Keeping the records TOT needs

You still need to know your sales every month. A simple tracker saves a lot of time:

With the new eTIMS rules, sales should be supported by electronic tax invoices; see eTIMS e-invoicing explained.

When to leave turnover tax

If your sales pass KES 25 million, or you want to claim large expenses and a loss carry-forward, normal income tax may suit you better. If you register for VAT, think about the combined effect; our guide on VAT for small businesses explains the registration rules.

Common mistakes

  1. Treating a deposit as turnover only when the job is finished. Count sales when they are made.
  2. Forgetting to file because no tax was due.
  3. Missing the 20th, which brings penalties; see KRA penalties and interest explained.

Next steps

If you decide turnover tax suits you, set up a monthly routine: record sales daily, total them on the last day of the month, file and pay by the 20th. A deadline list such as the KRA filing calendar for small businesses keeps the date in front of you, and a monthly sales tracker with targets shows how close you are to the KES 25 million limit during the year.

Confirm the current turnover tax rate and limits with KRA before filing.