Administration of Turn Over Tax

The Tax Law Tax Amendment Act brought into effect the following changes:

• • The turnover tax rate applicable is 1%.
  • The qualifying threshold for turnover tax is between Kshs 1 Million to Kshs 50 Million
  • The penalty for filing turnover tax is Kshs. 1,000.

Turn Over Tax is not applicable to the following income;

• • Management fees, professional fees or training fees.
  • Rental Income.
  • Other Incomes subject to withholding tax which is final.

The taxpayers whose turnover from businesses is Kshs 1 Million and below shall be exempt from Turn Over Tax.

Further guidance by the Kenya Revenue Authority on filing Turn Over Tax returns

• Taxpayers whose turnover from business qualifies the threshold should register for Turn Over Tax via their i-tax profile.
• When registering for Turnover Tax, those taxpayers who had losses brough forward as at 1st April 2020 shall forfeit the losses upon registration for Turn Over Tax.
• Taxpayers currently under the annual income tax regime and opts to register for the Turn Over Tax obligation starting 1st April 2020, they shall be required to close their annual income tax regime. The taxpayer shall prepare the financial statement up to 31st March 2020 and then file the corresponding income tax return upon closing the annual income tax regime.
• The taxpayers who receive tax credits starting 1st April 2020 shall offset them through a section provided in the turn over tax return.
• For the taxpayers whose gross receipts/ turnover meets the threshold of between 1 Million to 50 Million, but stick with the annual income tax regime ( they do not opt for turn over tax obligation), by default they shall be deemed to have informed the Commissioner of their choice by not registering for the Turn Over Tax.

Other Considerations

Value Added Tax

A person is required to register for Value Added Tax if he/she has made or expects to make Kshs 5 Million in a period of 12 months. 

Some of the taxpayers under Turnover Tax regime whose annual gross receipts/turnover is Kshs 5 Million and above are obliged to register Value Added Tax which is remitted not later than the 20th of the following month.

When computing for Turn Over Tax, the taxpayers registered for Value Added Tax shall deduct the Output VAT from the gross receipts before applying the 1% rate for Turn Over Tax.

See the illustration below;

It is important for all the taxpayers to note that the due date for Turn Over Tax is on or before 20th of the following month.