Turnover Tax will expand the tax-base, and ease the tax burden

Thursday 20th February 2020, made history as Kenya joined other African countries in successfully taxing the informal sector through the first collection of Turnover Tax (TOT).

The TOT was re-introduced in January, bringing the informal sector into the tax bracket, a move that is expected to widen the tax bands and ensure equitable distribution of the tax burden.

Turnover Tax (TOT) is payable by any resident person whose turnover from business does not exceed or is not expected to exceed Ksh. 5,000,000 during any year of income.

Turnover tax is currently working perfectly in countries like Ghana, Tanzania, Zimbabwe, South Africa and Nigeria. Other countries in Africa have now joined hands just like Kenya, to mobilize tax resources to boost growth and prosperity. You may be interested in

The African Tax Administration Forum (ATAF) is also actively leading countries in discussions around the growing interest, in taxation of the informal sector.

Currently, only 8% of the over, 40 million Kenyans diligently remit taxes; majority of this population are in the employment bracket.

A recent report by the United Nations’ Economic Commission for Africa states that Kenya has the highest informal sector employment at 77.9%, among nine countries, which include Rwanda, Uganda, Tanzania, Egypt, Liberia Mauritius, South Africa and Madagascar.

The huge number of informal sector workers receive steady income from businesses but do not remit their share of taxes as required.

The turnover tax is in line with the Finance Act, 2019, compelling businesses whose income does not exceed KSh. 5 Million to pay 3% on gross receipts, payable monthly.

For example, if an individual’s gross receipts for the month of January 2020 accrues to Ksh. 100,000, is liable to pay ToT at 3%, which is KSh. 3,000. This amount is payable on or before the 20th day of the following month (February, in this case).

On the other hand, an individual who pays Single Business Permit of KSh. 1, 000, pays 15% of this, which is KSh. 150. This is advance tax, which is available, to reduce the taxpayer’s liability for the month. To illustrate this, the 3% TOT paid from KSh. 10, 000 turnover is KSh. 300, but because Presumptive Tax of KSh. 150, is applicable in this case, it is deducted from the KSh. 300, making the payable TOT amount to only KSh. 150.In collection of this tax, KRA targets all businesses or persons applying for licences in the counties. In doing this, the tax […]

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