Navigating Turnover Tax (TOT): Simplifying Taxation For SMEs


Welcome to this week's edition of the RWK & Associates tax newsletter. Today, we delve into the intricacies of Turnover Tax (TOT), a fiscal measure aimed at streamlining taxation for businesses within a certain turnover bracket. TOT, governed by Section 12 (C) of the Income Tax Act (CAP 470), has garnered attention for its simplicity and impact on small to medium-sized enterprises (SMEs). Let's explore its key features, implications, and benefits

Understanding Turnover Tax (TOT)

TOT is a tax designed for businesses with a gross turnover ranging from Kshs. 1,000,000 to Kshs. 25,000,000 during any fiscal year. Implemented at a rate of 3% on gross sales since July 1st, 2023, TOT aims to simplify taxation processes for eligible entities. Notably, TOT operates as a final tax, meaning no further income tax filings are required on the income subject to it. This aspect alone has made it an attractive option for businesses seeking to reduce administrative burdens.

 Eligibility and Exemptions

Businesses meeting the turnover threshold are eligible for TOT unless they opt out by informing the Commissioner in writing. However, certain income streams such as rental income, management or professional fees, and income subject to final withholding tax are exempt from TOT. Additionally, non-resident taxpayers are not subject to TOT, further delineating its scope.

Compliance and Penalties

Registration for TOT is done online through the iTax platform, ensuring a seamless process for taxpayers. Returns and payments are due by the twentieth day of the month following the end of the tax period. Failure to comply attracts penalties, including a monthly penalty for late filing, a percentage penalty for late payment, and interest on unpaid tax. Nonetheless, the simplicity of filing and payment processes, including mobile payment options, has facilitated compliance for many businesses

In conclusion, Turnover Tax represents a significant step towards simplifying taxation for SMEs in Kenya. Its streamlined approach, coupled with reduced record-keeping requirements and simplified filing processes, has been instrumental in easing the tax burden on eligible businesses. However, adherence to compliance timelines is crucial to avoid penalties. As the fiscal landscape continues to evolve, RWK & Associates remains committed to keeping you informed about relevant tax developments and strategies. Stay tuned for next week's edition as we explore more insights into the world of taxation.

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