Filing & Paying

Turnover Tax

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What is Turnover Tax (TOT)?

Turnover Tax is a tax charged on businesses whose gross turnover is more than Kshs. 1,000,000 but does not exceed or is not expected to exceed Kshs. 25, 000,000 during any year of Income.

TOT is chargeable under Section 12 (C) of the Income Tax Act (CAP 470).

What is the rate of Turnover Tax?

It is payable at the rate of 1.5% on gross sales effective from 1st of July 2023 as per Finance Act 2023.

Eligibility for Turnover Tax

Any resident person or corporate whose gross / expected turnover is more than Kshs. 1,000,000 but does not exceed or expected to exceed Kshs. 25,000,000 in any year of income is eligible for Turnover Tax. However, a person may elect, by notice in writing to the Commissioner, not to be taxable under TOT in which case the other provisions of the Income Tax Act shall apply to such a person.

A Turnover Tax registered taxpayer dealing in vatable supplies and has a turnover of Kshs. 5,000,000 and above is required to register for VAT as well.

Exemptions under Turnover Tax regime

Turn over tax shall not apply to-:

Rental income
Management or professional or training fees; and
Any income which is subject to a final withholding tax under the Income Tax Act such as qualifying dividends or qualifying interests

Additionally, Turnover tax does not apply to non-resident taxpayers

Can someone claim for expenses under Turnover Tax?

No expenses are allowed for deduction.

Turn over Tax is charged on the gross sales and is a final tax.

Benefits of Turnover Tax

Reduced record keeping expenses because TOT registered taxpayers are only required to keep daily gross sales records and daily purchase
Simplified filing and payment processes including payment through mobile phones – M-Service App
Reduced time for filing and paying taxes
Turnover Tax is a final tax
One is not required to file end of year Income Tax return on income subject to

Registration for Turnover Tax

Registration is done online through the iTax platform

• Login to iTax using your PIN and password via https://itax.kra.go.ke

• Click on Registration module, select ‘amend PIN details’

• Under section ‘A’ ,basic information click on yes under question ‘Do you want to register for TOT?’

• Under section ‘B’ Obligation details, select the date of registration of TOT and submit the application.

Due date for filling and paying of TOT

A person subject to turnover tax under this section shall submit a return and pay the tax due to the Commissioner on or before the twentieth day of the month following the end of the tax period.

• Login to https://itax.kra.go.ke,

• Under the returns menu, select file return, then turnover tax and download the excel return,

• Complete the return and submit,

• After filing the return, go to the payment menu, select “payment”, select the amount payable, and generate a payment slip,

• Make the payment at a partner bank or through M-PESA

Penalty for Turnover Tax

Late filing of TOT return attracts a penalty of 1,000 per month.

Late payment penalty is 5% of the tax due.

Interest on unpaid tax is 1% of the tax due.

You can now also file and pay your TOT using the new KRA M-service App.

Lipa Ushuru na M-pesa

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Pay your taxes swiftly and conveniently via our M-payment services. Simple steps to follow:

What is Presumptive Tax?

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In accordance with Finance Act, 2018, the Presumptive Tax became payable from 1st January 2019.

Presumptive Tax is payable by a resident person whose turnover from business does not exceed Kshs. 5 million during a year of income.

Who should pay presumptive tax?

Persons liable to pay a Presumptive Tax shall be -

resident persons whose gross turnover from business does not exceed Kshs. 5 million during a year of income;and
who are issued or are liable to be issued with a business permit or trade license by a County Government.

Exceptions

The Presumptive Tax regime will not apply to:

a person whose income is exempt from tax under the First Schedule of Income Tax Act and has a valid exemption certificate.
a person who would otherwise pay tax under this regime but elects by notice in writing to the Commissioner not to be subjected to the Presumptive Tax.
a resident person whose gross turnover from business exceeds Kshs. 5 million in a year of income
any income derived from -
1. management and professional services; or
2. rental business; or
3. incorporated companies

What is the rate for presumptive tax?

The rate of presumptive tax shall be amount equal to 15% of the amount payable for a business permit or trade license issued by a County Government.

When is presumptive tax due?

The due date for payment of the tax shall be at the time of payment for the business permit or trade license or renewal of the same.

How do I pay Presumptive Tax?

Eligible taxpayers will have to log onto iTax to make payment for Presumptive Tax. The taxpayers shall be required to generate a Payment Registration Number (PRN) on iTax under Presumptive Tax Payment, after which they can pay through M-Pesa Pay Bill Number 572572 or any other partner bank.

What is the Penalty for late payment of Presumptive Tax?

5% of the tax due and a late payment of interest 1% per month as outlined in the Tax Procedures Act, 2015.

Note:

Presumptive Tax paid will be offset against the Turnover Tax (TOT) payable.

What is Installment Tax?

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Installment tax is estimated income tax paid to KRA periodically, in anticipation of the tax payable for a year of income. Installment tax is a form of advance tax administered under the Income Tax Act Cap 470, laws of Kenya. Installment Tax is paid in advance at four equal installments. It is paid before the year of income is over and before the accounts of the business are prepared to establish the actual tax payable.

It is payable by every person subject to tax (individuals and non-individual)
Installment taxes are not payable by persons who are subject to Turnover Tax (TOT)
Installment taxes are paid by individual taxpayers who have a tax liability, that is not fully covered under PAYE, of over Kshs. 40,000 payable for any year.
Projection is normally done at the beginning of the financial year. While projecting the annual tax liability, the expected withholding tax for the year is netted off in arriving at the net estimated tax liability to use in determining installment taxes payable.

How does one calculate installment tax?

This may be done in either of the two ways:

Prior year basis – Prior year tax payments are multiplied by one hundred and ten per cent.

Current Year basis - In this method, especially for new business or those who were in losses and turned to profitability, installment tax is determined by estimating the current year profit and tax payable thereon.

The installments are spread evenly at 25% of the tax due and payable on the 20^th day of the 4^th, 6^th, 9^th and 12^th months of the year of income for all taxpayers expect those in the Agricultural Sector.

Taxpayers in the Agricultural Sector pay in installments of 75% in the 9^th month and 25% in the 12^th month.

NB: Balance of Tax (return balance) is to be paid by end of the 4th month after the year-end. i.e. by 30th April 2020 for December year-end cases.

How does one pay installment tax?

Instalment tax is paid via iTax.

Generate a payment slip and present it together with the cheque drawn in favor of Kenya Revenue Authority, at any of the partner banks.

What is the Penalty for late filing and payment?

Penalty for the late payment of Income Tax shall apply.
The penalty of underpaying Installment tax is 20% of the difference between the amount of installment tax payable in respect of a year of income and the instalment tax actually paid

How does one claim installment tax already paid in the year of income?

You can claim it as an advance payment made in the given year of income.

Fringe Benefit Tax

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Fringe benefit tax is payable by every employer in respect of a loan provided to an employee, director or their relatives at an interest rate lower than the market interest rate.

What is Capital Gains Tax (CGT)?

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CGT is tax that is levied on:–

Gains which accrued to a company, an individual or partnership on or after 1^st January 2015 on transfer of property situated in Kenya, acquired on or before January 2015.
Gains arising from the sale of shares or comparable interests in foreign entities which derive more than 20% of their value directly or indirectly from immovable property situated in Kenya to CGT in Kenya. (effective 1^st July 2023)
Similarly, CGT will also apply where a non-resident person who holds more than 20% of the share capital of a Kenyan company directly or indirectly disposes off their interest. (effective 1^st July 2023)

What is the Tax Point?

CGT is charged at the point of transfer of property. This is upon registration of the transfer instrument in favour of the transferee indicating transfer of interest in the property from the seller to the purchaser.

CGT is declared and paid by the transferor of the property.

Rate of Tax

The rate of tax is 15% of the net gain.
It is a final tax i.e. the Capital Gain is not subject to further taxation after payment of the 15% rate of tax.
Net Gain is Sales Proceeds minus the Acquisition and Incidental cost
CGT is on gains arising from sale of property.

How to Compute Capital Gains Tax

Net Gain = (Transfer value - Incidental Costs on Transfer) - Adjusted Cost ( Acquisition Cost + Incidental Costs on Acquisition + Any enhancement Cost)

What constitutes a transfer?

If property is sold, exchanged, conveyed or otherwise disposed of in any manner (including by way of gift), whether or not for consideration;
On the occasion of the loss, destruction or extinction of property whether or not a sum by way of compensation is received in respect of the loss, destruction or extinction unless that sum is utilized to reinstate the property in essentially the same form and in the same place within one year or within a longer period of the time approved by the Commissioner.
On the abandonment, surrender, cancellation or forfeiture of, or the expiration of substantially all rights to property, including the surrender of shares or debentures on the dissolution of a company

Some allowable expenses for the purposes of CGT include;

Cost of Acquisition/Construction
Loan/Mortgage interest
Cost of advertising to find a buyer
Costs incurred in valuation of the property
Legal fees
Costs of enhancements.

How To Determine the Transfer Value/Selling Prices for the purpose of CGT

Amount received for transferring the property; Sums received in return for the abandonment, forfeiture or surrender of the property.
Amount received for the use of exploitation of the property eg rent
Compensation received for damage , injury to the property or for the loss of the property
Insurance policy reimbursement in respect of injury, or loss or damage to the property.

Exemptions on Capital Gains Tax

Income that is taxed elsewhere as in the case of property dealers
Issuance by a company of its own shares and debentures
Transfer of property for the purpose only of securing a debt or a loan
Transfer by a creditor for the purpose only of returning property used as security for a debt or a loan
Transfer by a personal representative of any property to a person as beneficiary in the course of the administration of the estate of a deceased person.
Transfer of assets between spouses;
Transfer of assets between former spouses as part of a divorce settlement or a bona fide separation agreement;
Transfer of assets to immediate family;
To a company where spouses or a spouse and immediate family hold 100% shareholding;
A private residence if the individual owner has occupied the residence continuously for the three-year period immediately prior to the transfer concerned
Transfer of property as a result of internal restructuring within a group which has existed for at least 24 months, and which does not involve a transfer of property to a third party.

How do I pay for Capital Gains Tax?

The due date for CGT payment shall be the earlier of receipt of full purchase price by the vendor or the registration of the transfer instrument in favor of the transferee.

-Payment should be initiated online via iTax https://itax.kra.go.ke

-The modes of payment include cash, cheque or RTGS.

-After initiating payment, you will receive a payment slip.

-Present the payment slip at any KRA appointed bank with the due tax to complete payment.

Note: The payment slip expires within 30 days

Income Tax

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Income Tax is a direct tax on income and is charged for each year of income upon all the income of a person, whether resident or non-resident, which accrued in or was derived from Kenya.

This is a compulsory obligation for all resident individuals registering for a PIN.

Offences & Penalties

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Tax offences can attract punitive penalties and interest. These include:

Offence- Failure to deduct PAYE, account for it or to submit a certificate upon request.

Penalty ? Whichever is greater of, 25% of the amount of the tax involved or Ksh. 10,000.

Offence - Failure to deduct or remit Withholding Tax.

Penalty - 10% of the amount of the tax involved, up to a maximum of Kshs. 1 million.

Offence - failure to remit Excise Duty or VAT.

Penalty - whichever is greater of, 5% of the amount of the tax due or Ksh. 10,000.

Offence ? Failure to pay tax on due date.

Penalty - 20% of tax involved is charged.

Offence - Failure to file annual returns by the due date.

Penalty - Additional tax equal to 5% of the normal tax, or Ksh. 10,000 in for Non-Individual Taxpayers.