Kenyan Taxes

Understanding Turnover Tax (TOT)-KRA

Turnover Tax applies to residents' businesses whose gross turnover sales are more than Kshs 1M and less than 50M in a given year.

As a business owner, you will be charged for your gross business sales under section 12 (c) of the Income Tax Act. In this article, we go in deeper with a better understanding of what TOT entails.

  • Facts you need to know about Turnover Tax
  • Who can register for Turnover Tax?
  • Do I have to pay more if my business has a lot of expenses?
  • Requirements for registering Turnover Tax on iTax
  • How to register for Turnover Tax
  • ‍How to file for Turnover Tax returns on iTax
  • How to calculate Turnover Tax
  • Who is exempted from Turnover Tax (TOT)
  • Penalties charged if you don't comply with Turnover Tax payments
  • Benefits of Turnover Tax
  • Conclusion

In Kenya, if you are qualified to be a TOT payer, your due date to file your returns will be before the 20th of the following month. This way, you will be giving back to the government room for developments to be achieved through KRA tax collections. 

Having expenses has become a norm for all business people worldwide. It doesn't matter where you are, but coming up with strategies to reduce these charges yearly is smart. You can claim your taxes to be reduced, which will be fair for you, given that you are supposed to spend your money on these taxes.

Facts you need to know about Turnover Tax.

  1. The tax rate you will be charged is reduced from 3% to 1%.
  2. Instead of filing your taxes quarterly, you can now file monthly.
  3. Not all businesses are subject to TOT filing. You should be able to choose whichever tax compliance you want for your business, provided that notice to the commissioner is placed.

Who can register for Turnover Tax?

Any person can register their business with TOT if their companies or services have achieved an amount of Kshs 1M to Kshs 50M in a period of 12 months. 

Do I have to pay more if my business has a lot of expenses?

The good thing about getting your business for turnover tax filing is that the system can determine the amount of deduction it needs to cut. Do your maths when it comes to companies and taxes. Know whether a particular tax suits the type of business you are running and whatnot. This will only help you adjust to the amount of tax you will be charged.

Requirements for registering Turnover Tax on iTax

  1. KRA PIN that will grant you access to operate on the iTax portal and your PIN's password.
  2. Your business certificate that will show proof that you have registered.
  3. TOT form that you will be required to fill in details you need for calculation and filing purposes.

How to register for Turnover Tax

To be able to register for Turnover Taxes on the KRA portal, you need to own a KRA PIN. I recommend using a different PIN other than your personal one for business purposes. You can set and register for a new PIN specifically for business which will be given to you immediately after.

  1. On the iTax portal, log in by inputting your KRA PIN and password.
  2. Once you are in, click registration on the drop down menu, then select amend PIN details which will take you to the next page, reading registration.
  3. Click on the Mode of Amendment, whereby you'll click on "online" then click next.
  4. While on the "Amendment form" page, tick on PIN, then proceed to the "basic information" page, where you'll be asked whether you want to register for TOT.
  5.  Click yes for TOT registration and continue reading information on that specific page, then, towards the end, click submit button.
  6. Once you are done with this process and have confirmed the message about the email you are using for KRA, you will receive an email notification to inform you that your registration was successful.

How to file for Turnover Tax returns on iTax

Here's a simple and brief description of how you can file your TOT on KRA;

  1. On the iTax KRA portal, input your PIN and password to access the site.
  2. Click on the return menu, select file return, then choose Turnover Tax and download the excel form.
  3. Select your tax obligation as Turnover Tax, fill in with relevant information as required, and click "Next."
  4. Download your tax form from the KRA portal. At this point, you will notice you are offered two documents to download, the excel version and the ODS version. Click and download the 1st option, which would be in excel format, to your computer.
  5.  Go back to point one, fill in your KRA pin, returns, and file returns, whereby you will add the return period you want to file for, then press the "next" button.
  6. Input the information you need in the form on your TOT for easy calculations. After you are done, press the "validate" button to generate the zipped folder you will need to upload on the KRA portal.
  7. Upload the downloaded form to the KRA portal, tick the check box to show you've read and agreed on the KRA terms, then click "submit."
  8. Lastly, download the acknowledgment receipt that you will receive to prove that you have successfully filed your returns.

You can also check out the KRA M-Service for filing your returns. You will find it available on the play and apple store, respectively, for Android and apple users. M-service is set in such a way that by dialing the USSD functionality *572#, you will be able to access your KRA services. It doesn't matter the type of phone you have, whether a smartphone or buttoned, you will be able to receive KRA services regardless.

How to calculate Turnover Tax

Calculating your tax return is one of the most important things you can do for your business. You should be able to know these procedures while on the iTax portal for easy calculations. You can do that with the help of a TOT calculator provided on the iTax portal. As required, you need to have your sales records to perform this process without guessing. Without further ado, let's look into the steps as follows;

  1. Start by downloading the TOT form on the iTax portal.
  2. Input your KRA number and PIN. 
  3. Fill in the return period you want to file for, then click "next."
  4. In this next step, you will need to input the gross sale made from your business for calculations to be made. Input your gross business sales from the previous month to calculate the tax due.
  5. Click on "validate" and upload the form to the KRA portal.

Who is exempted from Turnover Tax (TOT)

As mentioned above, TOT only applies to businesses with an income tax that's more than Kshs 1,000,000 or less than Kshs 50,000,000. If your business is far from that amount, you cannot apply or be charged for TOT.

  • You can also not be charged for TOT if you are earning rental income, as this is set differently following section 6A of the income tax ACT. If you are a landlord or landlady, you are supposed to file for annual rent income tax as opposed to TOT.
  • Any income subjected to final withholding taxes under the income tax is not allowed to file for TOT. These are taxes withheld at source, and examples include dividends, appearances, performances, and management or professional training fees, among many others. Any person paying this type of payment deducts taxes at an applicable rate and sends it to the commissioner on the recipient's behalf.

Penalties charged if you don't comply with Turnover Tax return payments.

Failure to keep up with the KRA system of filing returns will have you facing the following consequences;

  1. If you don't file your TOT, you will be charged an extra Kshs 1000.
  2. If you pay late, your penalty will be 5% of the tax due.
  3. You'll be charged a tax equal to 1% of the principal tax due for interest or unpaid taxes.

Benefits of Turnover Tax

There are many benefits that come with registering for a TOT;

  • It is easy and requires simple steps to input with the use of your mobile phone. Make payments through the new KRA M-Service downloaded on your phone.
  • It is convenient since it does not take much time to file returns.
  • It's a final tax, meaning you won't have to file for annual income taxes.
  • TOT payers can keep only a few records and files, as you only need your daily gross and sales documents.

Conclusion

It is always essential to keep track of your taxes daily. Businesses registered with the KRA system are at ease since the system performs all the calculations required. 

Any taxpayer whose annual gross exceeds the required amount can register for a value-added tax which will be deducted on the 20th of the following month. 

You must deduct the value-added tax from the gross receipt before applying the 1% rate for TOT. With these points, you will be sure to know whether your business can be registered for taxes.

NOTE: Also , you can watch our short summarized YouTube video that talks about Turn Over Tax.

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