That 1.5% TOT rate might be costing your business more than you think.
Before you select Turnover Tax on iTax, check these five things.
- Your profit margins
TOT is charged on gross sales, not profit.
You make KSh 100,000 in sales and spend KSh 90,000 running the business?
You still pay KSh 1,500 in TOT.
Your expenses don't reduce the tax.
- Your annual turnover
TOT generally applies to businesses with annual gross turnover above KSh 1 million and not exceeding KSh 25 million.
But here's another important threshold:
If your taxable supplies reach KSh 5 million in a year, VAT registration becomes compulsory.
VAT registration also affects your eligibility for TOT.
- The type of income you earn
Not every business qualifies for TOT.
Professional, management and training fees are among the excluded income streams.
Rental income and income subject to final withholding tax are also treated differently.
Don't assume all your business income automatically falls under TOT.
- Your option to opt out
Even if your business qualifies for TOT, you can elect in writing not to be taxed under this regime.
This may be worth considering if your business has substantial allowable expenses that could reduce taxable profit under the ordinary income tax regime.
- Your compliance routine
TOT may have a simpler filing structure, but you still have obligations.
You need to:
- File and pay monthly by the 20th.
- Maintain proper sales and purchase records.
- Keep supporting documents for your transactions.
Before choosing TOT, compare the actual numbers.
Would paying 1.5% of gross sales make more sense than paying income tax on your taxable profit?
Don't choose a tax regime simply because the rate looks lower.
Choose based on your business model, expenses and actual numbers.
