Turnover Tax (TOT) Explained
Simplified tax system for qualifying small businesses in Kenya.
What is Turnover Tax (TOT)?
In Simple Terms
TOT is a simplified final tax for qualifying businesses. You pay 3% of your gross sales for the month, but you still need to check separate obligations such as VAT registration and eTIMS compliance where they apply.
Official Definition (KRA)
Turnover Tax is charged at 3% of gross turnover for qualifying resident businesses whose annual turnover exceeds KES 1 million but does not exceed KES 25 million, subject to the statutory exclusions.
Who is Eligible for TOT?
Eligibility Criteria
- Annual turnover above KES 1,000,000 and not more than KES 25,000,000
- Resident taxpayer and not within an excluded category such as rental income or professional/management fees
- Monthly TOT return and payment filed through iTax
- VAT may still apply once you hit the VAT registration threshold for taxable supplies
Important Note
If your turnover rises above KES 25,000,000, TOT no longer applies. Also note that VAT registration may be required earlier once your taxable turnover reaches KES 5,000,000.
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 | Check current eTIMS requirements for your business | VAT taxpayers should issue compliant electronic tax invoices |
| 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 falls within the current TOT band
- 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 grows beyond the current TOT ceiling, you must move out of TOT. You can also voluntarily choose the ordinary income tax/VAT route if it better fits your business. Separate VAT registration may become mandatory once you cross the VAT threshold.
Do I still pay Corporate Income Tax with TOT?
TOT is a final tax on qualifying turnover, but it does not wipe out separate obligations such as VAT where VAT registration is required. Keep your other tax obligations under review.
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.