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Turnover Tax
1. What is Turnover Tax?
This is a tax that is charged on gross sales/turnover (i.e. earnings, income, revenue, takings, yield and proceeds)..

2. Who is liable to pay Turnover Tax?
- Any person carrying on any business with an annual turnover of K800,000 or less.
- Any person whose business earnings are subject to withholding tax and it is not the final tax such as, rental income, commissions, interest earned by companies, royalties earned by residents, etc.

3. Who is not liable to pay Turnover Tax?
- Any person carrying on a business with an annual turnover of more than K800,000.00
- Any individual or partnership carrying on business of public service vehicle for the carriage of persons.
- Partnerships carrying on any business irrespective of whether the annual turnover is K800,000 or less.
 
Partners' income from the partnership is also excluded from Turnover Tax. This is because it is the partnership that carries on business and not the partners. Partners are distinct from the firm (partnership) as stipulated by Section 4 of the Partnership Act of 1890.
 
- Consultancy fees are not part of Turnover Tax as per Amendment to the Income Tax Act # 1 of 2005.
- Any person whose turnover is K800, 000.00 or below and is voluntarily registered under Value Added Tax (VAT).
- Any person who is involved in mining operations as provided under the Mines and Minerals Development Act.
- Any person whose business earnings are subject to withholding tax and it is the final tax, such as:-

  • Bank interest for individuals
  • Dividends
  • Interest on Government Bonds
  • Interest earned on Treasury Bills for Charitable Institutions and other exempt persons.
  • Management and Consultancy fees paid to non - residents.
  • Payments made to non - resident contractors.
  • Public Entertainment Fees paid to non - residents.
  • Royalties paid to non - residents, etc.

4. At what rate is Turnover Tax calculated?

Following the Income Tax (Amendment) No. 45 of 2016, Turnover Tax is to be calculated as stipulated in the table below:

Table 5: Turnover Tax Computation

Monthly Turnover Category Tax Payable
K0 − K 4,200 3% of monthly turnover above K3,000
K4,200.01 − K8,300 K225 per month + 3% of monthly turnover above K4,200
K8,300.01 − K 12,500 K400 per month + 3% of monthly turnover above K8,300
K12,500.01 − K16,500 K575 per month + 3% of monthly turnover above K12,500
K16,500.01− K20,800 K800 per month + 3% of monthly turnover above K16,500
Above K20,800 K1,025 per month + 3% of monthly turnover above K20,800

There are two examples given below for further understanding:

Example 1: Computation of Tax on Turnover of K6,000.

AZ limited carries on business as a retailer. In the month of February 2017 the business made the following sales:

- Cash sales K4,000

- Credit sales K2,000

Total sales K6,000

The sales amount of K6, 000 will fall under the turnover category of K4, 200.01 – K8, 300. Tax payable will be calculated as follows:

Fixed presumptive amount K225

3% on K1, 800 (K6, 000 − K4, 200) K 54

Total tax payable by 14th March 2017 K 279

Example 2: Computation of Tax on Turnover of K4, 000.

AZ limited carries on business as a retailer. In the month of March 2017 the business made the following sales;

- Cash sales K2,500

- Credit sales K1,500

Total sales K4,000

The sales amount of K4, 000 will fall under the turnover category of K0.00 – K4,200. Tax payable will be calculated as follows;

Fixed presumptive amount K 0.00

3% on K1, 000 (K4,000 − K3,000) K 30.00

Total tax payable by 14th March 2017 K 30.00

NOTE:

The exempt amount of K3, 000.00 will only be applicable to turnover that falls within the first category.


5. How is Turnover Tax calculated?
Turnover Tax is calculated on gross sales/turnover.

6. Are there any returns to be submitted for Turnover Tax?
Yes. Turnover Tax Remittance Cards are to be submitted by the 14th of the month following the month in which the transactions occurred.
  • − Manually by the 5th of the following month to which the return relates and
  • − Electronically by the 14th of the month following the month in which the transactions occurred.

7. When should payment for Turnover Tax be?
Remittance for Turnover Tax is due by the 14th of the month following the month in which the sales are made.

8. For how long are taxpayers expected to keep business records?
Taxpayers will be required to keep all business records pertaining to turnover for a period of up to 6 years. They are also encouraged to keep other business records for purposes of determining their tax liabilities in case they exceed the turnover threshold of K800,000.00.

9. Does a taxpayer who is under Turnover Tax have to submit provisional tax returns?
No. Provisional tax returns are only required for taxpayers whose gross sales/turnover is above K800,000.00

REGISTRATION AND OTHER PROCEDURES

Registration
Taxpayers will be required to notify the Commissioner General within 30 days of commencement of business. They will be registered and given a Taxpayer Identification Number (TPIN), Individual or Company Income Tax account number and a Pay As You Earn (PAYE) number where applicable.

New Taxpayer
A new taxpayer will be required to register as stated above and they will use their estimated turnover on the registration. It will be necessary to register for all eligible tax types at initial registration. Note that all tax matters starting from registration can be done online.

Cessation of business
If a taxpayer closes down his business for whatever reasons, such as business failure, bankruptcy, winding up, etc., they are advised to send a notification to the Commissioner General immediately after such cessation.

Change in Annual Turnover
Where a taxpayer whose turnover is below the threshold discovers that his annual turnover will exceed K800, 000.00 during the course of the year, he will notify the Commissioner General immediately. However, he shall continue to pay Turnover Tax till the end of that particular charge year and shall be assessed under the Income Tax System.

Any change from Turnover Tax to Income Tax and vice versa shall take effect only at the beginning of a charge year. No change will be effected during the course of the charge year.
The changeover can either be initiated by the Taxpayer or indeed by ZRA where the system detects the change in turnover.
 


 
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