Turnover tax is the simple, flat tax for small businesses. The Finance Act, 2023 changed it in two ways: the rate tripled and the upper limit was cut. KRA confirmed that the new rate applied from 1 July 2023.

The two changes

  • The rate rose from 1% to 3% of gross sales.
  • The turnover band narrowed. Turnover tax is available to businesses with annual turnover between KES 1 million and KES 25 million. The upper limit fell from KES 50 million to KES 25 million.

The tax is still charged on gross sales with no deduction for costs, due by the 20th of the following month.

Who is affected

  • Businesses with sales between KES 1 million and KES 25 million pay three times more than before on the same sales.
  • Businesses between KES 25 million and KES 50 million can no longer use turnover tax and move to normal income tax.
  • Businesses below KES 1 million were not covered, and are unaffected.
  • Professional and management services, and income already taxed by final withholding or rental income, are excluded.

What it costs

On sales of KES 600,000 in a month, turnover tax rose from KES 6,000 to KES 18,000. On annual sales of KES 12 million, it went from KES 120,000 to KES 360,000. Check yours in the turnover tax calculator.

Should you switch

At 3% on gross sales, turnover tax is now less attractive for a business with thin margins. A retailer with a 5% net margin pays 3% of every sale, which is more than half its profit. A business with low costs, such as a consultancy-style service, may still do better on turnover tax. The comparison depends on your costs, so test it:

See turnover tax for small businesses for the conditions and filing steps.

What to do

  1. Recalculate your tax under both routes.
  2. Update your tracker. The turnover tax (TOT) tracker has the rate on a rates sheet that you can change.
  3. Check your filings are at the right rate for the period.
  4. Watch the limits. The monthly sales tracker with targets shows how close you are to KES 25 million.

Other limits to remember

VAT registration begins at KES 5 million of taxable sales; see VAT for small businesses. Being close to both limits needs planning.

Questions people ask

Is turnover tax still worth it at 3%? It can be, for low-cost businesses, because it is simple and needs no expense records for tax. For businesses with thin margins it can cost more than normal income tax.

What if my sales are just above KES 25 million? You move to normal income tax and probably VAT; see VAT for small businesses in Kenya and the sole trader versus company calculator.

Can I switch back and forth? Elections have rules and deadlines, so ask KRA before you change.

Where can I see my filing dates? The KRA filing calendar for small businesses lists the 20th of each month, and the KRA filing and payment calendar records when you filed.

Rates and limits are set by the Income Tax Act as amended. Confirm them with KRA before you file.