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Turnover Tax Returns Filing Services in Kenya

Managing tax obligations is a crucial part of running a business. One specific tax that small and medium enterprises (SMEs) often encounter is the Turnover Tax (TOT). Understanding the nuances of TOT and ensuring timely and accurate filing can be a daunting task. Fortunately, Gichuri & Partners is here to provide expert assistance, ensuring your business remains compliant and efficient in its tax affairs.

Understanding Turnover Tax (TOT)

Turnover Tax is a simplified tax regime for small businesses with an annual turnover below a specified threshold, usually designed to ease the tax burden and compliance process. TOT is typically a percentage of the gross sales/turnover of a business and replaces income tax, VAT, and other small business taxes.

Key Features of TOT:

  1. Eligibility: Typically for businesses with a turnover below a certain amount.
  2. Rate: A fixed percentage on gross turnover.
  3. Frequency: Often requires monthly or quarterly returns.

Challenges in TOT Filing

Despite its simplified nature, TOT filing can present several challenges:

  • Understanding Tax Regulations: Keeping up with the ever-changing tax laws and regulations can be challenging for small business owners.
  • Accurate Record Keeping: Ensuring all sales and receipts are accurately recorded.
  • Timely Submission: Meeting the deadlines to avoid penalties.
  • Resource Constraints: Small businesses often lack the resources or expertise to handle tax filing efficiently.

How Gichuri & Partners Can Assist

Gichuri & Partners   is a leading tax consultancy firm with extensive experience in assisting SMEs with their tax obligations. Here’s how we can help you with TOT filing:

  • Expert Guidance Our team of tax professionals stays updated with the latest tax laws and regulations. We provide clear and concise guidance tailored to your business needs, ensuring you understand your tax obligations under the TOT regime.
  • Accurate Record Keeping We assist in setting up efficient record-keeping systems. By maintaining meticulous records of your business transactions, we ensure that your TOT returns are accurate, minimizing the risk of errors and penalties.
  • Timely Filing We understand the importance of meeting deadlines. Our proactive approach ensures that your TOT returns are filed on time, every time. We keep track of all filing dates and notify you well in advance to gather necessary information.
  • Resource Optimization Outsourcing your TOT filing to Gichuri & Partners allows you to focus on core business activities. Our experts handle the complexities of  tax filing , freeing up your time and resources.
  • Comprehensive Support From initial registration for TOT to ongoing compliance and audit support, we offer end-to-end services. Whether you need help with quarterly returns or annual assessments, we are here to support you every step of the way.
  • Cost-Effective Solutions We provide affordable tax consultancy services tailored to the needs of small businesses. Our goal is to offer value for money while ensuring full compliance with tax laws.
  • Conclusion

Turnover Tax (TOT) filing   doesn’t have to be a burden on your business. With Gichuri & Partners by your side, you can navigate the complexities of TOT with ease and confidence. Our expertise, dedication, and comprehensive support services ensure that your business remains compliant, efficient, and focused on growth. Contact us today to learn more about how we can assist you with TOT filing and other tax-related needs.

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Turnover Tax in Kenya

Turnover Tax (TOT) is one of the most controversial taxations in Kenya. It was introduced in 2008 through the Finance Act 2007, to simplify how small and medium-sized enterprises (SMEs) file their taxes. The introduction was met with some resistance as businesses argued the new tax would burden small businesses. This led to its suspension in 2010 to the relief of SMEs. Yet, the government was worried that these businesses would evade taxation with its suspension because other tax obligations barely captured the revenue from the informal sector.

Recognizing the need for revenue collection in the informal sector and the need to distribute the tax burden equally among all citizens, the Kenyan government re-introduced TOT in 2020 via the Finance Act 2019. The taxation has seen significant changes over the years, the latest being a rate increase from 1% to 3% in 2023. This post unpacks everything you need to know about Turnover Tax in Kenya.

Understanding Turnover Tax in Kenya

Turnover Tax is a tax charged on small and medium-sized businesses in Kenya whose annual turnover is between Ksh. 1,000,000 and Ksh. 25,000,000. Turnover is the total amount of money your business makes from the sale of goods or services over a specific period. It is the gross revenue collected from your business before deducting expenses like salaries, business capital, rent, etc.

The rate of turnover tax in Kenya is 3% on gross sales according to the Finance Act of 2023. The new rate took effect in July 2023, rising from the previous 1% based on the Finance Act 2019.

Turnover Tax Eligibility in Kenya

As we mentioned, TOT is exclusive to SMEs. This doesn’t mean every SME in Kenya is obligated to pay this tax. Below are the eligible entities that are expected to pay TOT in Kenya:

  1. Any resident individual or corporation whose business turnover exceeds Ksh.1 million but doesn’t exceed Ksh. 25 million in any year of income.
  2. A TOT registered taxpayer trading VATable supplies. If they have a turnover of Ksh. 5 million and above, KRA demands they register for VAT too.

Note: A person may request to be exempted from TOT by writing to the KRA commissioner. If you do so, KRA will apply other provisions in the Income Tax Act.

TOT Exemptions in Kenya

Which individuals and businesses are exempted from the TOT tax obligation? They include the following:

  • Non-resident taxpayers.
  • Rental income- it’s already subject to another tax regime
  • Management, professional, or training fees
  • Income that’s subject to a final withholding tax under the Income Tax Act. E.g. Dividends and Interests.
  • Employment income- it’s already subject to another tax regime

Who is the Primary Target for Turnover Tax in Kenya?

Turnover Tax in Kenya targets SMEs. The TOT threshold is businesses with an annual turnover of 1-25 million Kenya shillings. These entities include:

  • Small and medium-sized retail shops
  • Informal sector service providers such as hair stylists, salons, barbershops, spas, beauty parlors, and repair shops
  • Small and medium-sized manufacturing enterprises
  • Market traders and hawkers
  • Other SMEs in the informal sector who meet the TOT eligibility criteria

How and When To Submit Turnover Tax in Kenya

Turnover Tax in Kenya is submitted every month. KRA recommends filing this return on or before the 20th day of the month following the end of the tax billing period. For example, you are required to remit January’s TOT on or before the 20th day of February.

As mentioned earlier, the TOT rate is 1.5% of your gross revenue. Calculate this amount and remit it via a KRA-partner bank or MPESA. KRA-partner banks include:

  • Absa Bank (formerly Barclays Bank)
  • Cooperative Bank of Kenya
  • Family Bank 
  • Equity Bank
  • Diamond Trust Bank
  • I & M Bank
  • National Bank of Kenya
  • Kenya Commercial Bank (KCB)
  • NCBA Bank

If your business isn’t registered for Turnover Tax, you need to do so before remitting this tax. Follow the steps below to register for TOT:

  1. Go to https://itax.kra.go.ke/KRA-Portal/ and log in using your KRA PIN and password.
  2. Navigate to the Registration module and select Amend PIN Details.
  3. You’ll see the question “Do you want to register for TOT?” under Section A, basic information. Click Yes.
  4. Go to section B>Obligation Details and select the date of registration of TOT. Submit the application.

How to File Turnover Tax

Follow the steps below:

  1. Visit the KRA portal and log in to your account.
  2. Navigate to the Returns menu and click File Return>Turnover Tax. Download the returns form.
  3. Complete the returns form and submit it.
  4. Go to the Payment Menu. Select Payment>Amount Payable, and generate the payment slip.
  5. Make the required payment via MPESA or KRA-partner bank.

Penalties for Turnover Tax

Failure to file TOT returns or late payment attracts several penalties. 

  • Late filing penalty: If you file your TOT returns later than the agreed date, it attracts a penalty of 1,000 Kenya shillings per month.
  • Late payment penalty: Late payment of TOT tax attracts a penalty of 5% of the due tax.
  • Unpaid tax interest: For every month you don’t pay your TOT tax, a 1% interest is applied to your outstanding balance.

Avoid these penalties by filing your TOT returns and remitting the payments on time. If you need professional help with TOT compliance, we are here to help. Gichuri & Partners is your number-one tax consultant in Kenya.

Pros and Cons of Turnover Tax in Kenya

As we mentioned at the beginning of this article, TOT is one of the most controversial tax obligations in Kenya. It has its fair share of advantages and disadvantages. 

Pros

Some TOT advantages include:

  • A simplified filing and payment process- you can even pay via mobile money services like MPESA
  • Revenue growth for the Kenyan government
  • Shared tax obligation between formal and informal sectors, decreasing the burden on the formal industry
  • Growth opportunities for SMEs. Businesses have formalized their operations in the wake of TOT, which creates an opportunity for growth through better credit access, legal protection, and market share.

Cons

TOT’s drawbacks include:

  • Double taxation- some businesses that pay TOT are also expected to pay VAT, Income Tax, and other tax regimes too. There’s potential for double taxation.
  • It’s exploitative- TOT is based on the gross income, instead of the profits a business makes. It’s deemed exploitative, especially for businesses operating on losses or with thin profit margins.

Conclusion

The Turnover Tax in Kenya ensures the informal sector contributes to national revenue, sharing the tax burden with the formal sector. With good record-keeping and awareness of how it works, it shouldn’t be hard to pay and file your TOT returns. This comprehensive guide discussed everything you need to know about Turnover Tax in Kenya. If you’d like professional assistance or consultancy to be tax compliant, Gichuri & Partners is the best tax consultant in Kenya. Contact us and we will gladly help.

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How to File VAT Returns in Kenya

Learn how to file VAT returns in Kenya using iTax, step by step. Our guide covers registration, requirements, and deadlines for hassle-free tax compliance. Value Added Tax (VAT) is a significant source of revenue for the Kenyan government. It is imposed on the supply of goods and services at every stage of production and distribution.

As a business owner or a self-employed individual, filing VAT returns is not only a legal requirement but also a crucial part of maintaining compliance with tax regulations. In Kenya, VAT returns are submitted electronically through the Kenya Revenue Authority (KRA) online platform, iTax. This blog post will walk you through the VAT filing process, ensuring you understand every step to avoid penalties and ensure compliance.

Who Should File VAT Returns?

VAT applies to businesses that supply taxable goods or services with an annual turnover exceeding Ksh 5 million. Additionally, businesses that voluntarily opt for VAT registration must file returns. Common categories include:

  • Importers of goods
  • Suppliers of taxable services
  • Manufacturers
  • Retailers and wholesalers

If you fall into any of these categories, you must file monthly VAT returns with the KRA.

Understanding VAT Rates in Kenya

Kenya imposes three VAT rates:

  • Standard Rate (16%): This applies to most goods and services in Kenya.
  • Zero-rated (0%): This is applied to exports and certain categories like medical supplies.
  • Exempt: Some goods and services, such as financial services and certain agricultural products, are exempt from VAT.

Understanding which category your business activities fall under is crucial when filing VAT returns.

How to Register for VAT on iTax

If you are required to file VAT returns, the first step is to register your business for VAT. Here’s how to register through the iTax platform:

  • Visit the KRA iTax portal https://itax.kra.go.ke.
  • Log in using your KRA PIN and password.
  • Navigate to the “Registration” tab and select “Amend PIN Details.”
  • In the “Tax Obligation Details” section, select VAT.
  • Submit your application, and KRA will review and approve your VAT registration.

Once your VAT registration is complete, you will receive a VAT Certificate from KRA.

Documents and Information Required for VAT Filing

Before you start filing your VAT returns, ensure you have the following details:

  • Invoices for sales and purchases: Ensure all VAT-inclusive invoices are accurate and readily available.
  • Credit notes and debit notes: Any adjustments to your VAT must be supported with these documents.
  • Import declarations (if applicable): For businesses importing goods, you will need your import declaration forms (IDF) and customs documents.
  • KRA PIN and iTax login credentials: This is mandatory to access the iTax platform.

Step-by-Step Process of Filing VAT Returns on iTax

Step 1: Log in to iTax Portal

Go to iTax and log in using your KRA PIN and password.

Step 2: Navigate to VAT Returns

Once logged in, navigate to the “Returns” tab, and select “File Returns.” Choose VAT as the tax obligation.

Step 3: Download the VAT Excel Template

KRA provides a VAT return form in an Excel template format (VAT3 form). Download the template and ensure it’s the correct version for the tax period.

Step 4: Fill in the VAT Template

The VAT3 template requires you to input details of your taxable sales and purchases, including:

  • Sales (output VAT): Input the total sales for the period and the VAT charged at 16%, 0%, or the exempt rate.
  • Purchases (input VAT): Input the total purchases and the corresponding VAT you paid.

Ensure accuracy in entering the amounts, as mistakes can result in penalties or additional scrutiny from KRA.

Step 5: Validate and Upload the Form

Once the template is fully filled, validate it using the built-in validation tool in the Excel sheet. After validation, save the validated form as a zip file.

Step 6: Upload the VAT Return

Return to the iTax portal, navigate to the “Returns” tab, and click on “Upload VAT Return.” Browse and select the validated VAT3 file, then submit.

Step 7: Acknowledge the Return

Once submitted, you will receive an acknowledgment receipt from KRA, which serves as proof of filing. You can download this receipt and save it for future reference.

Payment of VAT Due

If your VAT return shows that you owe KRA any VAT, you must make the payment by the due date, which is the 20th of the following month. Late payment or failure to file on time will attract penalties.

Payment Methods

  • iTax Pay: You can generate a payment slip through iTax and pay via banks or mobile money services like M-Pesa.
  • Bank Transfer: Payments can be made directly to KRA through its partner banks.
  • Real-Time Gross Settlement (RTGS): For larger amounts, RTGS can be used.

After making payment, you should receive an e-slip and an acknowledgment from KRA that your VAT has been paid.

VAT Refunds and Credits

If your input VAT (the VAT you pay on purchases) exceeds your output VAT (the VAT you charge on sales), you may be eligible for a refund. KRA allows VAT-registered businesses to apply for a refund under certain conditions. However, this process can be lengthy, and you must provide sufficient documentation to support your claim.

You can also carry forward any excess input VAT to offset future VAT liabilities.

Penalties for Late Filing or Payment

Failure to file VAT returns or pay VAT on time can result in penalties, including:

  • Late filing penalty: Ksh 10,000 or 5% of the VAT payable, whichever is higher.
  • Late payment penalty: 5% of the VAT due, plus 2% interest per month on the outstanding amount.

To avoid these penalties, it is essential to file your VAT returns on time and ensure payment is made by the due date.

Common Mistakes to Avoid When Filing VAT Returns

  • Failing to keep proper records: Ensure all invoices and receipts are kept for at least five years as KRA may request them for audits.
  • Incorrect VAT calculations: Always double-check your input and output VAT amounts to avoid errors.
  • Failing to file nil returns: Even if no business was conducted, VAT-registered businesses are required to file a nil return.

Conclusion

Filing VAT returns in Kenya may seem complex, but with the iTax system and proper record-keeping, the process is relatively straightforward. Following the steps outlined in this guide will help you file your returns correctly and on time, avoiding penalties and ensuring that your business stays compliant with Kenyan tax laws. If you have any difficulties or need professional assistance, feel free to reach out to Gichuri & Partners for expert VAT filing services.

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How to File Capital Gains Tax in Kenya

Capital Gains Tax (CGT) is a tax levied on the profits an individual or company gets from a transfer of assets situated in Kenya. A transfer can constitute a sale, exchange, disposal, or gifting of the property to another entity or individual. Targeted assets and properties include land, buildings, and unlisted shares (private equity).

The tax regime was first introduced in Kenya in 1975 in a bid to broaden the tax base. A decade later, CGT was suspended due to failure in implementation and negative impact on investments. It stayed suspended for three more decades, until 2015 when it was reintroduced through the Finance Bill of 2015.

From Jan 1, 2015, investors were mandated to pay a 5% tax on all gains from the transfer of property and private equity. Fast forward to Jan 1, 2023, the eligible assets were added to include any property situated within Kenya, regardless of whether the property was acquired on or before Jan 2015. In addition, the CGT rate rose threefold from 5% to 15%.

Overview of Capital Gains Tax in Kenya

CGT is one of the ambiguous tax regimes in Kenya, with most people wondering what assets are taxable and which are exempted. The scope was narrower in 2015 when the tax was first reintroduced, but as of 2023, more assets were recognized by KRA as taxable, including tangible and intangible assets. The scope now includes:

  • Land
  • Real estate buildings
  • Shares
  • Bonds
  • Machinery
  • Intellectual property like authored books, patents, trademarked designs, etc.

Keeping up with this scope is not easy for most taxpayers and investors.

What is the Rate of Capital Gains Tax in Kenya?

The rate of CGT in Kenya is 15% of net gain. But what is the net gain? To understand net gain in the calculation of CGT tax, we need to first define various terms used here. These are:

Transfer Value

The transfer value is the gross compensation received after transferring the asset or property. For instance, if you quoted 10 million for a piece of land and that’s what the buyer paid, that’s the transfer value of that asset.

Incidental Costs on Transfer

These are costs incurred during the transfer of the property. It includes legal fees, agent fees, advertisement costs, and other miscellaneous expenses. For the purpose of this post, let’s assume the incidental costs on transfer are 1 million.

Adjusted Cost

The cost incurred in acquiring the property, improving it (incidental costs on acquisition), and other enhancements. For example, the land you’re selling at 10 million may have cost you 1 million in purchase price, and 2 million in fencing, drilling boreholes, and planting trees. The adjusted cost in this case is 3 million (1+2).

Now,

The Net Gain = (Transfer Value – Incidental Costs on Transfer) – Adjusted Cost

 From the above examples,

Net Gain = (10 -1) – 3 = 6.

The Net Gain is 6 million, and this is the taxable amount. In that case, if the CGT rate is 15% of the net gain, the payable tax will be

15% of 6 million

That is, 900,000.

What happens when you sell the property at a loss? The reason KRA calls it Capital Gains Tax is because it’s only applicable where the transfer was profitable. In the event, you make a loss during the transfer, you are not expected to pay CGT.

Allowable Costs Recognized Under Incidental and Adjusted Costs

You need to be aware of allowable incidental and adjusted costs in the calculation of CGT. This awareness will help you maximize your gains and save more money. You don’t want to lose your profits to the taxpayer. You must deduct these costs from your transfer value. They include:

  • Acquisition cost or Construction costs in the case of real estate buildings
  • Loan and mortgage interests
  • Advertisement costs to find a buyer
  • Property valuation costs
  • Legal fees
  • Agent fees
  • Enhancement costs- costs you incurred to add value to the property

Exemptions: Transfer Gains That Are Exempted From Paying CGT

KRA exempts the following from paying capital gains tax:

  • Property dealers’ income- the income is already taxed under a different tax regime
  • Company shares and debentures
  • Transfer of property to pay a loan or debt
  • Transfer of property by a creditor after loan repayment- in a situation where the property was used as collateral
  • Transfer of property to a beneficiary in administration of the estate of a deceased person
  • Transfer of assets to an immediate family member, spouse, or ex-spouse in a divorce or separation
  • Transfer of private residence where the individual owner has occupied the residence continuously for three years after the prior transfer
  • Internal restructuring where the transfer doesn’t involve a third party
  • Transfer of securities traded on the Nairobi Stock Exchange
  • Transfer of land whose value is not more than 3 million
  • Transfer of agricultural land less than 50 acres and situated outside a municipality, gazetted township, or urban area
  • Transfer of title of immovable property to a family trust and property sold to transfer the title to a registered family trust

How to File Capital Gains Tax

CGT is a one-time tax (final tax). Once you paid the tax, there is no further taxation for that gain. The tax is due 30 days after completion of the transfer. The seller is required to declare and pay the tax within the stipulated period, failure to which a penalty is applied. Follow the steps below to file capital gains tax:

  1. Go to https://itax.kra.go.ke/ and log into your account using the KRA PIN and password.
  2. Navigate to Payments.
  3. Select Payment Registration.
  4. On the Tax head menu, select Income Tax followed by Capital Gains Tax as the subhead.
  5. Fill in the transaction details as needed including the Transfer Value, Acquisition Cost, and Adjusted Cost.
  6. Click Submit.
  7. You’ll receive a payment slip.
  8. Carry the payment slip to a KRA-partner bank and present it at the bank.
  9. Make the payment.

That’s all. You have successfully paid your capital gains tax.

Conclusion

This comprehensive guide explained how to file capital gains tax in Kenya. This is an income tax levied on gains from the transfer of assets like land, property, and unlisted securities. We hope you now have an idea of what this tax entails. For further clarification and assistance with your taxes get in touch with us. Gichuri & Partners is your reliable tax consultant for personalized strategies and expert guidance.

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