i. Turnover Tax

What is Turnover Tax (TOT)?

Turnover Tax (TOT) is chargeable under Section 12 (C) of the Income Tax Act, CAP 470 Laws of Kenya (“the ITA”). Any resident person whose gross turnover is, or is expected to be, more than Kshs. 1,000,000 but does not exceed, or is not expected to exceed, Kshs. 25,000,000 in any year of income is eligible to pay Turnover Tax.

In accordance with the ITA, TOT is payable at the rate of 1.5% on gross sales (no deductions for expenses are allowed)

In exceptional circumstances a person may elect, by giving written notice to the Commissioner, not to be taxable under TOT. Upon making this election, the person will instead be subject to tax under the annual income tax regime.

A TOT registered taxpayer dealing in vatable supplies and has a turnover of Kshs. 5,000,000 and above is required to register for VAT.

How do you register for TOT?

Registration is done online through the iTax platform • Login to iTax using your PIN and password via https://itax.kra.go.ke

• Click on Registration module, select ‘amend PIN details’

• Under section ‘A’, basic information click on yes under question ‘Do you want to register for TOT?’

• Under section ‘B’ Obligation details, select the date of registration of TOT and submit the application.

TOT Due Date- A person subject to turnover tax is required to submit a return and pay the tax due to the Commissioner on or before the twentieth day of the month following the end of the tax period.

Keeping of Records -A person subject to turnover tax is required to keep records necessary for the determination and ascertainment of the tax in accordance with the Tax Procedures Act (Cap. 469A).

Procedure to pay TOT

• Login to https://itax.kra.go.ke,

• Under the returns menu, select file return, then turnover tax and download the excel return,

• Complete the return and submit,

• After filing the return, go to the payment menu, select “payment”, select the amount payable, and generate a payment slip,

• Make the payment at a partner bank or through M-PESA

Exemptions under Turnover Tax regime

Turn over tax shall not apply to-:

1. Rental income

2. Management or professional or training fees;

3. Any income which is subject to withholding tax as a final tax under the Income Tax Act

4. Non-resident taxpayers

Penalty for Turnover Tax

• Late filing of TOT return attracts a penalty of 1,000 per month.

• Late payment penalty is 5% of the tax due.

• Interest on unpaid tax is 1% of the tax due.

Benefits of Turnover Tax

· Simplified filing and payment processes including payment through mobile phones – M-Service App

· Reduced time for filing and paying taxes

· It is a final tax

ii. Corporations tax

This is a tax that is chargeable on corporations. Resident Companies are taxed at a rate of 30% while non-resident companies with a permanent establishment are also taxed at a rate of 30%.

How do I file for Corporation Tax?

Corporation Tax is filed online via iTax by filing an Income Tax Company Return (IT2C Form), on or before the sixth month after the end of an accounting period.

For instance: a company whose accounting period runs from 1 Jan - 31st Dec is allowed up to 30th June of the following year to file their corporation tax failure to which it attracts a penalty.

The Return covers one fiscal year which is a period of 12 months within which the corporation chooses to make its financial statements.

Allowable deductions

Taxable income comprises gross income earned or derived in Kenya after deducting expenses wholly and exclusively incurred in the production of that income. Section 15 and 16 of the ITA provide for the deductions that are allowed and those not allowed respectively. The expenses that would be deductible against business income may include general operational expenses, interest payable on any loans utilised for working capital requirements, salaries and wages, administrative costs and any other expenses incurred by the company wholly and exclusively for purposes of production of the business income.

Exemptions from Corporations Tax

It is noteworthy that individuals, sole proprietorships and partnerships do not pay corporations Tax. They are however required to declare their total income of the year in the Individual Income Tax Return and pay Income Tax.

Some notable exemptions that can be explored by SME’s include:

The exemption from income tax of the income of an institution, body of persons or irrevocable trust, of a public character established solely for the purposes of the relief of the poverty or distress of the public, or for the advancement of religion or education.

An Export Processing Zone (EPZ) enterprise which does not engage in any commercial activities (include trading in, breaking bulk, grading, repacking, or relabelling of goods and industrial raw materials) is also exempted from paying any corporation tax for a period of 10 years starting with the year in which it has been licensed as an EPZ enterprise to commence. Though exempted from paying tax, it will still be required to submit an annual return of income.

During the initial 10-year duration when the EPZ is exempt from tax, it is however subject to withholding tax on payments made to it, payments made to non-residents which is considered final tax and tax on employment income for employees and directors, excluding non-residents.

Conclusion

Navigating tax obligations is a critical aspect of running a compliant and sustainable business in Kenya. Whether your business falls under the Turnover Tax regime or is subject to Corporation Tax, understanding the applicable thresholds, filing procedures, deadlines, and exemptions is essential.

At CM SME Club, we specialize in supporting small and medium-sized enterprises by helping them navigate Kenya’s complex tax and regulatory landscape. Whether you're subject to Turnover Tax (TOT), Corporation Tax, or operating within a special regime like an Export Processing Zone (EPZ), our team is here to ensure you understand your obligations and avoid penalties. We assist in determining your eligibility, registering for the appropriate tax regime through iTax, filing returns on time, and ensuring compliance with all relevant laws. We

provide personalized guidance regarding all taxes applicable to your business to help you manage your business smoothly and stay focused on growth. For any inquiries contact law@cmsmeclub.com.

Contributor:

Amy Onderi - Trainee Advocate (aonderi@cmadvocates.com)

Tabitha Muchiri – Associate Advocate (tmuchiri@cmadvocates.com)

Published on May 5, 2025, 9:05 a.m.