Turnover Tax in Kenya: The 1.5% Rule for Small Businesses (2026)

If you run a shop, a salon, a hardware store or a small services business in Kenya, there is a good chance you are not supposed to be filing ordinary business income tax at all. Instead you fall under Turnover Tax (TOT) — a deliberately simplified regime that charges a small percentage of your sales and asks almost nothing of your bookkeeping.

It is one of the most misunderstood taxes in Kenya, partly because the rate has genuinely changed three times in recent years and the internet is full of outdated figures. This guide sets out what actually applies now.

What Turnover Tax is

TOT is a final tax on gross sales. That phrase carries two important consequences:

"On gross sales" means it is charged on everything you sell, before any costs. You do not subtract rent, stock, wages, transport or electricity. Whatever comes in through the till is the base.

"Final" means that once you have paid it, that income is done with. You do not later compute profit, claim expenses, and pay income tax on top. This is the trade-off at the heart of TOT: you give up the ability to deduct expenses, and in return you get a very low rate and almost no accounting burden.

The rate and the thresholds

Per the KRA, TOT is charged at 1.5% of gross sales, a rate effective from 1 July 2023.

You fall inside the regime if your business turnover is:

more than KSh 1,000,000 a year, and
not more than KSh 25,000,000 a year (and not expected to exceed it).

Both ends matter. Below KSh 1 million you are outside TOT. Above KSh 25 million you leave TOT and move into the ordinary income tax regime, where you file normal accounts, deduct genuine business expenses, and pay tax on profit.

A warning about figures you will find elsewhere. Search for this topic and you will be told confidently that the rate is 3%, or that it was "reduced to 1% in April 2020", or that the ceiling is KSh 50 million. Those were all true once. The 1% was a COVID-era relief measure; the Finance Act 2023 set the rate at 1.5% and cut the upper threshold from 50 million to 25 million. Tax content ages badly, and this particular topic ages worse than most — always check the KRA's own page before relying on a number, including this one.

What TOT does not cover

TOT applies to business turnover, and not everything that reaches your bank account is business turnover. The KRA specifically excludes:

Rental income — taxed under its own rules, not TOT.
Management and professional fees — these fall outside the regime.
Income already subject to a final withholding tax — for example qualifying dividends or interest, where tax has already been deducted at source. Investment income of that kind is dealt with separately; if you also hold shares, see how to invest in NSE shares for how dividend withholding works.
Non-resident persons — TOT is for residents.

If your income is a mix — say a shop plus a rented-out flat — the shop turnover may sit in TOT while the rent is taxed under the rental regime. Two different obligations, and you cannot merge them.

Filing: monthly, by the 20th

This is where people most often go wrong, because the filing rhythm has also changed over the years and old guides describe a quarterly cycle.

Per the KRA, the return is due on or before the twentieth day of the month following the end of the tax period — a monthly obligation. Sales made in March are declared and paid by 20 April.

Twelve filings a year sounds heavier than it is. Because the computation is simply gross sales × 1.5%, a month's return is a few minutes of work provided you have kept your sales record. The discipline is in the record-keeping, not the filing.

You file on iTax, the same portal used for every other KRA obligation. If you have never filed anything before, the mechanics of logging in, the annual return and the penalties for missing it are covered in how to file your KRA tax returns on iTax — the annual return obligation still exists alongside TOT, and having a KRA PIN is what creates it.

The one record you must keep

The great advantage of TOT is that it does not demand a full set of accounts. Under the simplified regime you are expected to keep a daily record of gross sales — and that is the core of it.

In practice this means:

Write down every day's takings, without exception, including the quiet days.
Keep it consistently — a notebook that is filled in daily is worth more than a spreadsheet you reconstruct in a panic every 19th.
Separate business money from personal money. This is the single highest-value habit for any small Kenyan business. If your business takings and your household spending run through the same M-Pesa line, you will never know your true turnover, and you will not be able to defend the figure if it is questioned. A separate business account or a dedicated till/paybill fixes this — see how to manage money on M-Pesa for the practical side, and compare accounts on our bank accounts comparison.

A worked example

Say your hardware shop takes an average of KSh 180,000 a month.

Annual turnover: 180,000 × 12 = KSh 2,160,000 — comfortably inside the KSh 1m–25m band, so TOT applies.
Monthly TOT: 180,000 × 1.5% = KSh 2,700, payable by the 20th of the following month.
Annual TOT: roughly KSh 32,400.

Now notice what is not in that calculation. Your stock purchases, your rent, your assistant's wages, your electricity — none of them reduce the bill. If that shop's actual profit after all costs was, say, KSh 400,000 for the year, you paid roughly 8% of your profit in TOT. If it was a bad year and you barely broke even, you still paid the KSh 32,400, because the tax follows sales, not profit.

That asymmetry is the thing to understand before deciding how you feel about TOT.

When the simple option is not the cheap option

TOT is designed to be easy, and for most small traders it is also cheap. But the two are not the same thing, and there is a category of business for which TOT is a genuinely poor deal: high-turnover, low-margin operations.

Consider a business reselling goods at a thin markup — moving KSh 20 million of stock a year to earn KSh 600,000. TOT would charge 1.5% of the 20 million, which is KSh 300,000: half the profit. Under the ordinary regime, that business would deduct its cost of sales and pay tax on the KSh 600,000 instead.

So the honest rule is: the thinner your margins, the worse TOT is for you. If your business turns over large volumes at small mark-ups, it is worth having an accountant compare the two regimes for your actual numbers rather than defaulting into TOT because it is simpler. The KRA has rules about who may elect out; that conversation is worth having properly rather than guessing.

For a business at the other end — a service business with high margins and few deductible costs, like a salon or a consultancy under the fee thresholds — TOT is usually excellent.

Growing out of TOT

Crossing KSh 25 million in turnover is not a disaster, but it is a transition that needs planning rather than discovery:

You move to the ordinary income tax regime, taxed on profit rather than sales.
You will need proper books — not just a daily sales record, but expenses, assets, and accounts.
VAT becomes a separate consideration at its own registration threshold, which is not the same number as the TOT ceiling. If you are approaching either, get advice before you cross, not after.

If growth is the plan, start keeping fuller records well before you need them. Businesses that cross the threshold with two years of clean expense records behind them have a straightforward transition; businesses that cross it with a shoebox do not.

Penalties and staying compliant

Late filing and late payment both attract consequences, and interest accrues on unpaid tax. Confirm the current penalty figures directly with the KRA — penalty amounts have been revised more than once, and quoting a stale number here would be exactly the error this guide warns about elsewhere.

The practical protections are unglamorous: file every month even in a month with no sales, keep the daily sales record without gaps, and do not let three months pile up before you look at it.

Frequently asked questions

What is the Turnover Tax rate in Kenya? 1.5% of gross sales, effective 1 July 2023, per the KRA. Older sources quoting 3% or 1% are describing rates that no longer apply.

Who has to pay Turnover Tax? Resident persons whose business turnover exceeds KSh 1,000,000 and does not exceed (and is not expected to exceed) KSh 25,000,000 in a year of income.

Is Turnover Tax filed monthly or quarterly? Monthly. The return is due on or before the 20th day of the month following the tax period. Guides describing a quarterly cycle are out of date.

Can I deduct my business expenses under TOT? No. TOT is charged on gross sales, and it is a final tax. That is the trade-off for the low rate and light record-keeping — which is also why it suits high-margin businesses far better than thin-margin ones.

Does TOT cover my rental income? No. Rental income is excluded from TOT and taxed under its own rules, as are management and professional fees and income already subject to a final withholding tax.

Do I still need to file an annual return if I pay TOT? Holding an active KRA PIN creates an annual filing obligation of its own. See how to file your KRA tax returns on iTax, and confirm your specific position with the KRA if you are unsure how the two interact.

What happens if my turnover goes above KSh 25 million? You move out of TOT into the ordinary income tax regime, taxed on profit rather than sales, with full accounting requirements. Plan the transition — and your bookkeeping — before you cross, not after.

Reviewed 29 August 2026. Figures established from the Kenya Revenue Authority's own Turnover Tax guidance. Tax rules change with each Finance Act — confirm current rates and thresholds with the KRA before acting. General information, not tax advice.