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All you need to know about Turnover Tax & Presumptive Tax

There has been quite a bit of a buzz about taxation in Kenya on the internet, especially towards the end of 2020. The proposed Tax Laws (Amendment) Act, 2020, comes into effect on the 1st of January 2021 after receiving presidential assent. After receiving the presidential nod on the 325th of April 2020, this act became law and will have a raft of impacts on business in Kenya. Under this new law, businesses will not be required to keep complex accounting records. As an eligible taxpayer, you will only be required to keep track of your daily gross sales.

What is Turnover Tax (TOT) Anyway?

The government has introduced a ‘simpler’ tax regime for Micro and small enterprises (MSMEs). Essentially, Turnover tax applies to small businesses whose gross sales do not (or are not expected to) exceed Ksh. 5 Million per year. If, based on your previous sales and future projections, you are making sales of Over 1 million and under 5 million in a year, make sure to submit your taxes as required. Accordingly, Turnover Tax is payable on a monthly basis of 3% of your gross total sales, by the 20th of every month.

What is Presumptive Tax (PT)?

If your business has been in operation and the business permit is up for renewal, you are probably eligible for presumptive tax. This tax is paid in advance, by small businesses whose gross sales do not exceed 5 million per year. The value of the presumptive tax is equivalent to 15% of your applicable business permit or license fee.

Understanding the importance and benefits of turnover tax

The new tax regime allows you to pay through mobile money. This means you can do your business and file taxes on the go. Since you are only required to keep daily sales records, it reduces the complexity of record keeping in your business. Moreover, you might not necessarily need an accountant. Most importantly, you are now not required to invest in computers or electronic tax registers as everything can easily be done at the convenience of your phone. Additionally, it is a final tax, hence, you are then neither required to file monthly VAT returns nor annual income returns.

Frequently asked questions about Turnover Tax and Presumptive Tax

As a new entrepreneur or decision-maker in your business, understanding taxation laws can be quite challenging in some instances. Here are a few common questions:

1. Will filing both Turnover tax and presumptive tax result in double taxation?

No. Given that Presumptive tax is an advance tax, it shall be deducted from Turnover Tax payable in the subsequent month(s), therefore, there is no double taxation.

2. Who is exempt from paying Turnover Tax and Presumptive Tax?
  • Persons registered for VAT,
  • Employment income,
  • Rental income,
  • Limited liability companies, and
  • Management and professional services.
3. What if I don’t want to be subject to paying Turnover Tax and Presumptive Tax?

You can choose to do so by applying to the Commissioner in writing in which case you shall be expected to prepare accounts and file returns annually under the normal income tax regime.

4. How do I register for Presumptive tax and Turnover tax?

You can sign up quickly on iTax through your mobile phone or computer

5. When should I file my next Presumptive tax and Turnover tax?

Turnover Tax returns are filed on or before the 20th day of the following month. For example the turnover tax for January 2020 is payable on or before the 20th of February 2020.

Do you have any problems understanding taxation and other laws governing business in Kenya? You can get help from Scribe Services Registrars.