You’ve just closed a good week at your small shop in Gikomba or your hardware store in Nakuru. The till is looking healthy. But then the thought hits you: “Hii pesa ya tax, itakuja aje?” If your business is turning over less than Ksh 1 million per year, you might be in the Turnover Tax (TOT) bracket. It’s a simpler tax for small players, but the rules can be confusing.
This guide breaks down what Turnover Tax in Kenya really is, who must pay it, and how to know if your hustle qualifies. We’ll keep it straight to the point, just like you like it.
What Exactly is Turnover Tax (TOT)?
Turnover Tax, or TOT, is a tax on your business’s gross sales. We say gross sales because it’s calculated on everything you sell before you remove any costs. Think of it as a small slice of your total revenue that goes straight to the Kenya Revenue Authority (KRA).
The current rate is a flat 3%. So, if your business makes Ksh 50,000 in sales in a month, your TOT would be Ksh 1,500 (that’s 3% of 50,000). It’s designed to be straightforward for small businesses that might find Value Added Tax (VAT) and corporate income tax too complex.
The key thing to remember? TOT is for resident individuals and companies with an annual turnover between Ksh 1 million and Ksh 50 million. If you’re below Ksh 1 million, you’re exempt. Above Ksh 50 million, you graduate to the “big league” of VAT.
Who Must Pay Turnover Tax in Kenya?
Not every business pays TOT. Your venture must fall under a specific category. The law lists these as eligible:
- Retailers (your duka, boutique, or supermarket)
- Wholesalers (supplying goods to other businesses)
- Professionals (doctors, lawyers, architects in private practice)
- Manufacturers (like small-scale Jua Kali artisans or food processors)
- Service providers (salons, barbershops, cyber cafes, boda boda SACCOs)
If your main income is from employment (a salary) or rental income, TOT does not apply to you. Those have their own tax rules.
The TOT Qualification Checklist for Your Business
So, does your side hustle or main business qualify for Turnover Tax in Kenya? Run through this quick checklist. You must tick ALL the boxes.
- Annual Turnover: Your gross sales must be between Ksh 1,000,000 and Ksh 50,000,000 in a year. Below Ksh 1M? Breathe easy, you’re exempt. Above Ksh 50M? Time to register for VAT.
- Business Type: You must be in retail, wholesale, manufacturing, or a listed service/profession. A mama mboga stall or a Mitumba seller qualifies as a retailer.
- Not VAT Registered: You cannot be registered for VAT. It’s either TOT or VAT, not both. If you’re voluntarily registered for VAT, you must deregister to join TOT.
- Not Exempt: Your business income shouldn’t be from management or professional training services, as these are specifically excluded from TOT.
How to Register and Pay TOT to KRA
Registration is done through the KRA’s iTax portal. If you already have a KRA PIN for your business, you likely just need to activate the TOT obligation. Log in to iTax, go to the “Registration” tab, select “Turnover Tax,” and follow the prompts.
Paying is a monthly duty. You must file and pay by the 20th day of the following month. For example, TOT for sales made in March must be paid by April 20th. You can pay via iTax using M-Pesa (Paybill 572572), your bank, or at a KRA office. Missing the deadline attracts penalties and interest, so set a reminder on your phone!
Why TOT Can Be a Smart Move for Kenyan Small Biz
For many small business owners, TOT is a relief. It simplifies your tax life. You don’t need to track complex expenses or hire an expensive accountant just for tax filing. You just calculate 3% of your sales and remit it.
It also keeps you compliant with KRA without the heavy burden of VAT, which involves charging tax to customers, filing detailed returns, and claiming input tax. With TOT, what you see is what you pay. This predictability can help you plan your cash flow better, especially during tough seasons like the long rains when customer footfall might drop.
The Nairobi Hustle: A Real-Life TOT Scenario
Let’s talk real numbers. Imagine Wanjiru, who runs a thriving mitumba clothing business along Biashara Street in Nairobi. She sources bales from Gikomba and sells to walk-in customers and a few small retailers. Last year, her total sales (turnover) were Ksh 4.2 million.
Here’s her Kenyan Shillings breakdown:
- Annual Turnover: Ksh 4,200,000
- Monthly Average: Ksh 350,000
- Monthly TOT (3%): Ksh 10,500
- Annual TOT Bill: Ksh 126,000
Wanjiru pays Ksh 10,500 every month to KRA. This is a fixed cost she factors into her pricing. During the December high season, her sales might jump to Ksh 600,000, meaning a higher TOT of Ksh 18,000 for that month. But in the slow January period, it could be as low as Ksh 7,500. She uses a simple spreadsheet to track daily sales and knows exactly what to set aside for tax.
Local Tip: Many small traders in such markets use M-Pesa’s “Lipa Na M-Pesa” for sales. At the end of each day, check your M-Pesa statement for business transactions. This provides a clear, digital record of your turnover, making it easier to calculate your TOT and explain your figures if KRA ever asks. Mixing business and personal M-Pesa is a headache you don’t need.
What Happens If You Don’t Comply?
Ignoring TOT is a direct ticket to problems with KRA. The authority is increasingly using data from suppliers, banks, and mobile money to track business activity. If you qualify but don’t register and pay, you risk:
- Back taxes for all the months you should have paid.
- A penalty of 5% of the unpaid tax for each month you’re late.
- Interest at 1% per month on the unpaid amount.
- Potential audits and enforcement actions, which can freeze your business accounts.
It’s cheaper and less stressful to just be compliant from the start. Consider the TOT as a small operational cost, like paying your water bill to Nairobi City Water or your electricity token to KPLC.
Final Verdict: Is TOT For You?
Turnover Tax in Kenya is a tailored solution for the small business engine that powers our economy. It’s for the salon in Kisumu, the hardware guy in Eldoret, the freelance graphic designer in Mombasa, and the agrovet shop in Kitengela. If your turnover is in that sweet spot of Ksh 1M to Ksh 50M, registering for TOT is not just a legal requirement—it’s a smart business practice that keeps you on the right side of the law with minimal fuss.
The process is digital, the calculation is simple, and the peace of mind is worth it. Don’t let tax fears hold your business back. Get compliant, focus on growing your turnover, and when you finally hit that Ksh 50 million mark, view it as a celebration—you’re graduating to the next level.