Understanding Turnover Tax (TOT): My Personal Guide for Kenyan SMEs
As someone deeply involved in corporate governance and policy implementation, I’ve often found myself guiding small and medium-sized business owners through Kenya’s sometimes overwhelming tax landscape. The Turnover Tax (TOT) system, introduced by the Kenya Revenue Authority (KRA), was designed to make things simpler. It’s a tax based on your monthly gross sales — not your profits — which means it’s relatively easy to compute and pay.
Still, even though TOT is straightforward, it isn’t automatically the best choice for every business. I’ve included a calculator above to help you estimate your TOT liability. Let me break down what TOT is, who needs to pay it, and how you can determine if this system is better for your enterprise compared to the standard income tax regime.
What is Turnover Tax and Who Needs to Pay It?
Turnover Tax is charged on the total sales your business makes — that’s your gross income before deducting any costs. It’s mainly targeted at resident businesses whose annual turnover falls between KES 1,000,000 and KES 25,000,000. If your business is within this bracket, then you’re generally required to operate under the TOT system.
Table 1: Key Terms You Should Know
| Term | Meaning | Why It Matters |
|---|---|---|
| Turnover / Gross Sales | This is the total amount you collect from sales each month before subtracting expenses. | This figure is used to compute your TOT. Keeping precise sales records is critical. |
| TOT Rate | The percentage applied to your gross sales. As of 2025, it stands at 1.5%. | For instance, if you make KES 100,000 in sales, you owe KES 1,500 in TOT. |
| Deductible Expenses | These are costs like rent, salaries, or supplies that you usually subtract from income to lower your tax bill. | Under TOT, you can’t deduct any expenses. Tax is applied on the entire turnover. |
| eTIMS | The electronic Tax Invoice Management System required by KRA for issuing invoices. | You still need to issue eTIMS invoices, even though expenses aren’t deductible under TOT. |
Note: Certain types of income — like rental income, professional fees, or management fees — don’t fall under TOT. They’re taxed differently.
Making the Big Choice: TOT or Standard Income Tax?
From my professional experience, this is one of the most crucial decisions for any business owner whose turnover sits in the TOT range. Should you stick with TOT’s simplicity, or apply for an exemption to be taxed under the normal income tax regime? The best path largely depends on your profit margins.
Table 2: TOT vs. Standard Income Tax at a Glance
| Aspect | Turnover Tax (TOT) | Standard Income Tax |
|---|---|---|
| What’s Taxed? | Your gross monthly sales. | Your net profit (sales minus allowed expenses). |
| Can You Deduct Expenses? | No. You pay tax on all sales, even if you made a loss. | Yes. Legitimate expenses reduce your taxable income. |
| How Often to File? | Monthly, due by the 20th of the next month. | Annually, though you pay instalments during the year. |
| Ease of Compliance | Very simple to manage and file. | More complex, requiring careful tracking of all costs. |
| Best Suited For… | Businesses with high margins and low running costs, such as consultancies. | Businesses with thin margins and significant expenses, like most retailers. |
My rule of thumb: If your expenses are a small fraction of your sales, TOT might save you time and stress. But if your business has high operational costs, you could pay less tax under the standard regime.
Staying Compliant: How to File and Pay TOT
The TOT process is refreshingly straightforward. It’s all done online via the KRA iTax portal, but it’s crucial to keep up with the deadlines to avoid penalties.
Table 3: Filing Your Monthly TOT Return
| Step | What You Need to Do |
|---|---|
| 1. Login | Access your iTax account using your KRA PIN. |
| 2. Navigate | Go to the ‘Returns’ menu, select ‘File Return’, and choose ‘Turnover Tax’. |
| 3. Enter Sales | Pick the tax period and enter your total gross sales for that month. |
| 4. Submit | The system calculates your 1.5% tax automatically. Check everything and submit. |
| 5. Generate PRN | Click ‘Payment Registration’ to get a payment registration number (PRN). |
| 6. Make Payment | Pay through M-Pesa (Paybill 572572) or any KRA partner bank by the 20th. |
Deciding between TOT and the standard tax regime is more than a compliance task — it’s a strategic business choice. I encourage you to use the calculator to get an idea of your TOT burden, then analyze your own costs to see which option truly benefits your bottom line.
From my years in governance, HR, and operations, I’ve seen how picking the right tax structure can significantly influence a company’s growth trajectory. I hope this guide helps you make that decision with confidence.