Turnover Tax vs Income Tax vs VAT in Kenya 2026: Which Taxes Does Your Business Pay?

Updated 21 October 2026

Quick answer: Turnover tax (TOT) is a simple 1.5% tax on gross sales for resident businesses with turnover above KSh 1 million and up to KSh 25 million a year. Income tax is charged on profit instead, at the individual rates of 10% to 35% for sole traders and partners, or at the corporation tax rate for companies. VAT is a separate 16% tax on taxable sales that you must register for once taxable sales reach KSh 5 million a year. A small business can therefore pay TOT and VAT together, but TOT replaces income tax on the same business income.

All rates and thresholds here come from the Kenya Revenue Authority’s (KRA) own pages on turnover tax, value added tax and individual income tax, and its Finance Act 2026 summary, read on 19 October 2026. This page is general information, not tax advice. Your own position depends on your type of income, so confirm with KRA or a registered tax agent before you change how you file.

In this guide

1. The Three Taxes at a Glance
2. Turnover Tax: The Simple Option for Small Businesses
3. Income Tax: Taxed on Profit, Not Sales
4. VAT: A Tax You Collect for KRA
5. Worked Example: TOT or Income Tax?
6. Which Taxes Apply to You?
7. Frequently Asked Questions

The Three Taxes at a Glance

Item	Turnover tax (TOT)	Income tax (business profit)	VAT
What is taxed	Gross sales	Taxable profit (sales minus allowable expenses)	Value of taxable sales (charged to customers)
Rate	1.5% (since 1 July 2023, Finance Act 2023)	Individuals 10% to 35% by band; companies pay corporation tax	16% general rate; 0% for zero-rated supplies
Who it applies to	Residents with turnover above KSh 1m and not above KSh 25m a year	Everyone with taxable income who is not on TOT for that income	Anyone with taxable supplies of KSh 5m or more a year
Expenses deductible?	No	Yes, if wholly and exclusively for the business	Input VAT on business purchases is deducted from output VAT
How often you file	Monthly, by the 20th	Annual return (individuals by 30 June; companies 6 months after year end)	Monthly, by the 20th
Late filing penalty	KSh 1,000 per month	Individuals: higher of 5% of tax due or KSh 2,000	Set by the Tax Procedures Act; see KRA
Late payment	5% penalty plus 1% interest	5% penalty plus 1% interest a month	Penalty and interest under the Tax Procedures Act

Source line: KRA Turnover Tax (TOT) page, KRA Value Added Tax page and KRA Individual Income Tax page, all read 19 October 2026.

Turnover Tax: The Simple Option for Small Businesses

KRA describes TOT as a tax on businesses whose gross turnover is more than KSh 1,000,000 but does not exceed KSh 25,000,000 in a year of income. It is charged under section 12C of the Income Tax Act at 1.5% of gross sales, and it is a final tax. That means you do not file an end-of-year income tax return on the income already taxed under TOT.

The catch is that no expenses are allowed. You pay 1.5% of sales whether you made a profit or a loss. KRA also lists what TOT does not cover:

• Rental income (it has its own regime; see our guide to rental income tax)
• Management, professional or training fees
• Income already subject to a final withholding tax, such as qualifying dividends or interest
• Non-resident taxpayers

You can also opt out. KRA says a person may elect, by written notice to the Commissioner, not to be taxed under TOT, in which case normal income tax rules apply. That can make sense for a business with thin margins, as the worked example below shows.

To register, log in to iTax, open the Registration menu, choose “Amend PIN details” and answer “Yes” to “Do you want to register for TOT?”, then pick the start date. You can file and pay through iTax or the KRA M-Service app. Work out your monthly bill with our turnover tax calculator.

Income Tax: Taxed on Profit, Not Sales

If you are not on TOT, your business profit is taxed as income. For a sole trader or a partner, the profit is added to any other income and taxed at the individual bands KRA has applied since 1 July 2023:

Annual taxable income	Rate
First KSh 288,000	10%
Next KSh 100,000	25%
Next KSh 5,612,000	30%
Next KSh 3,600,000	32.5%
Above KSh 9,600,000	35%

Resident individuals also get personal relief of KSh 28,800 a year (KSh 2,400 a month). A limited company is a separate taxpayer and pays corporation tax on its own profit under the Income Tax Act, at 30% for resident companies.

Individuals file their annual return between 1 January and 30 June of the following year, using the file income tax returns on iTax guide. KRA’s Finance Act 2026 summary says that from 1 January 2027 the individual deadline becomes the last day of the fourth month after the year ends, which is 30 April. Companies keep filing within six months of their accounting year end. If you had no income at all, you still file a nil return.

VAT: A Tax You Collect for KRA

VAT works differently. You add 16% to the price of taxable goods and services (output tax), deduct the VAT you paid on business purchases (input tax), and pay KRA the difference by the 20th of the next month. KRA’s own example: buy goods for KSh 10,000 plus KSh 1,600 VAT, sell them for KSh 12,000 plus KSh 1,920 VAT, and you pay KRA KSh 320.

• Registration threshold: taxable supplies of KSh 5 million or more in a year. Below that, you may register voluntarily, subject to conditions.
• TOT and VAT together: KRA’s TOT page says a TOT-registered taxpayer dealing in vatable supplies with turnover of KSh 5 million and above must register for VAT as well.
• eTIMS: every VAT-registered taxpayer must be on eTIMS, and tax invoices should be generated from it. See our eTIMS expense validation guide.
• Exempt supplies carry no VAT, and you cannot claim input tax on them. Businesses making only exempt supplies do not register.
• Finance Act 2026: from 1 July 2026, an invoice showing VAT may only be issued for a taxable supply.

Pay VAT, TOT and income tax by M-Pesa using the payment registration number on your iTax payment slip. KRA’s VAT page lists paybill 572572, and its income tax page lists the government paybill 222222; use whichever your payment slip shows.

Worked Example: TOT or Income Tax?

Take a sole trader with KSh 3,000,000 in annual sales (below the VAT threshold) and no other income. These are simple illustrations using the KRA rates above, with personal relief and no other reliefs.

Scenario	TOT at 1.5% of sales	Income tax on profit, after KSh 28,800 personal relief
High margin: profit KSh 1,200,000	KSh 45,000	KSh 268,600
Low margin: profit KSh 300,000	KSh 45,000	KSh 3,000

How the income tax is worked out. On KSh 1,200,000 profit: 10% of the first 288,000 is KSh 28,800, 25% of the next 100,000 is KSh 25,000, and 30% of the remaining 812,000 is KSh 243,600. That totals KSh 297,400, less KSh 28,800 relief, which leaves KSh 268,600. On KSh 300,000 profit: KSh 28,800 on the first band plus 25% of 12,000 (KSh 3,000) is KSh 31,800, less relief, which leaves KSh 3,000.

The lesson: TOT is usually far cheaper for a business with healthy margins and simple records, while a business with very thin margins or losses can pay more under TOT than it would under income tax. That is the situation where the written election to leave TOT is worth discussing with a tax agent. Remember too that TOT does not cover professional or training fees, so a consultant cannot use it for that income.

Which Taxes Apply to You?

Your situation	Usually applies
Resident trader, sales KSh 1m to under KSh 5m, sells goods	TOT (unless you elect out); no compulsory VAT
Resident trader, taxable sales KSh 5m to KSh 25m	TOT or income tax, plus VAT registration
Sales above KSh 25m	Income tax (or corporation tax) plus VAT
Consultant, trainer or professional	Income tax on fees (TOT excluded), VAT once taxable supplies reach KSh 5m
Landlord with residential rent	The separate rental income tax regime, not TOT
Limited company	Corporation tax on profit, or TOT if it qualifies; VAT if over the threshold

Before any of this you need a PIN: get a KRA PIN as an individual, or a KRA PIN for a company. If you are behind with returns, check KRA penalties on iTax first; KRA’s Finance Act 2026 summary notes a tax amnesty on penalties and interest for liabilities due up to 31 December 2025, where the principal tax is paid by 31 December 2026.

Looking for bookkeeping or tax jobs to build the skills? Accounting and finance vacancies are listed on JobinKenya.

Frequently Asked Questions

What is the turnover tax rate in Kenya in 2026?

1.5% of gross sales, in force since 1 July 2023 under the Finance Act 2023.

Who qualifies for turnover tax?

Resident persons and companies whose gross turnover is above KSh 1 million and not above KSh 25 million a year, excluding rental income, professional, management or training fees, and income under final withholding tax.

Can I pay turnover tax and VAT at the same time?

Yes. KRA says a TOT taxpayer making vatable supplies with turnover of KSh 5 million and above must also register for VAT.

Do I file an annual income tax return if I pay TOT?

Not on the income taxed under TOT, because KRA treats TOT as a final tax. You still file for any other income, such as employment or rent.

When is TOT due?

By the 20th day of the month after the tax period. Late filing costs KSh 1,000 a month; late payment attracts a 5% penalty and 1% interest.

What is the VAT registration threshold in Kenya?

KSh 5 million or more of taxable supplies in a year. Non-resident digital marketplace suppliers must register whatever their turnover.

Last checked 19 October 2026 on kra.go.ke (Turnover Tax, Value Added Tax, Individual Income Tax and Finance Act 2026 pages). Thresholds and rates change with each Finance Act, so check KRA before filing.