Turnover Tax (TOT) Explained
Simplified tax system for small businesses in Kenya.
What is Turnover Tax (TOT)?
In Simple Terms
TOT is a simplified tax for small businesses. Instead of dealing with complex VAT calculations, you simply pay 3% of your total sales (turnover). No need to track input VAT, output VAT, or keep detailed records of every purchase. It's designed to make life easier for small business owners.
Official Definition (KRA)
Turnover Tax is a simplified tax regime for businesses with annual turnover below KES 50 million. It's charged at 3% of gross turnover and replaces both VAT and Corporate Income Tax for eligible businesses.
Who is Eligible for TOT?
Eligibility Criteria
- Annual turnover below KES 50 million
- Not VAT-registered (or willing to deregister)
- Not in certain excluded sectors (banking, insurance, etc.)
- Must be a resident business
Important Note
If your turnover exceeds KES 50 million, you must register for VAT and cannot use TOT. You'll need to switch to VAT registration.
TOT vs VAT: Which Should You Choose?
Comparison Table
| Feature | TOT | VAT |
|---|---|---|
| Tax Rate | 3% of turnover | 16% on sales (can claim back input VAT) |
| Record Keeping | Simple - just track sales | Detailed - track all purchases and sales |
| Invoicing | Standard invoices OK | Must use eTIMS |
| Claiming Back VAT | No | Yes, on business purchases |
| Best For | Small businesses, low expenses | Larger businesses, high expenses |
When to Choose TOT
- Your annual turnover is below KES 50M
- You have few business expenses (can't claim much VAT back)
- You want simpler record-keeping
- You sell mainly to final consumers (not businesses)
How is TOT Calculated?
Worked Example
Let's say your business has a monthly turnover of KES 500,000:
Note: TOT is calculated on gross turnover (total sales), not profit. You pay 3% regardless of whether you make a profit or loss.
Filing Requirements
Monthly TOT Returns
- Due Date: 20th of the following month
- Payment: Must be made by the 20th
- Filing: Done through iTax portal
What You Need to File
- Total gross turnover for the month
- TOT payable (3% of turnover)
- Payment confirmation
Much simpler than VAT - you only need to report your total sales!
Common Questions
Can I switch from TOT to VAT?
Yes, if your turnover exceeds KES 50M, you must switch to VAT. You can also voluntarily switch to VAT if you want to claim back VAT on purchases. Once you switch to VAT, you cannot switch back to TOT for at least 2 years.
Do I still pay Corporate Income Tax with TOT?
No, TOT replaces Corporate Income Tax. You only pay TOT at 3% of turnover. However, if you're a sole proprietor, you may still need to file personal income tax returns for other income sources.
What if I make a loss?
You still pay TOT. Unlike income tax, TOT is based on turnover, not profit. Even if you make a loss, you must pay 3% of your sales. This is why TOT is only suitable for businesses with healthy profit margins.
Calculate Your TOT
Use our calculator to see how much TOT you should be paying.