Compare turnover tax against normal income tax and VAT for a small trader.
Recommended regime
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Turnover tax path
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Income tax + net VAT path
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The decision comes down to your margin
Two small traders with identical sales can owe wildly different tax depending on which regime they sit in. Turnover tax charges a flat percentage of sales and ignores your costs. The normal regime taxes only the profit you actually made, on graduated income tax bands, and adds the net VAT you collect on behalf of the Kenya Revenue Authority. So the question is never simply which is cheaper in the abstract. It is which is cheaper for your particular margin, and this tool answers that by computing both paths from the same set of numbers and naming the lower one.
The intuition is worth holding in your head before you trust any calculator. A trader with a fat margin makes a lot of profit per shilling of sales, so the profit-based normal regime can produce a hefty income tax bill, and the flat 3 percent of turnover starts to look like a bargain. A trader on a thin margin makes very little profit per shilling, so the normal regime taxes almost nothing, while the flat turnover tax still grabs its 3 percent of every sale regardless. Low margins favour normal tax. High margins favour turnover tax.
What each path actually adds up
Take the eligibility gate first, because it overrides everything. Turnover tax is only available to resident persons whose annual turnover falls inside the KES 1 million to KES 25 million band this calculator uses. If your turnover is outside that band, the tool does not even offer the ToT path; the normal regime is your only option. Inside the band, both paths are computed:
- The turnover tax path is simply 3 percent of your turnover, the rate this calculator applies.
- The normal path is income tax on your net profit, run through the resident income tax bands with the personal relief built in, plus net VAT, which is 16 percent of your sales less the 16 percent input VAT you reclaim on taxable purchases.
A KES 3 million trader on a healthy margin
Picture a trader with KES 3 million in annual turnover, KES 900,000 of net profit, and KES 1.8 million of taxable purchases. The turnover sits inside the band, so both paths run. The figures below use the rates this calculator applies.
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The gap is stark in the chart below. The teal bar is the turnover tax path, the grey stack is the normal path split into its income tax and net VAT components.
The catch this comparison hides
Read the result carefully, because the tool always bundles net VAT into the normal path, and that is not always realistic. VAT registration only becomes compulsory once taxable turnover crosses the KES 5 million mark the KRA references. Our example trader at KES 3 million may not be VAT registered at all, in which case the real normal-path cost is closer to the income tax alone, around KES 178,600, and the gap against turnover tax narrows sharply. So treat the VAT line as the worst case for the normal path: it applies if you are registered, and it shrinks or disappears if you are not. This is the single most common mistake people make when comparing the two regimes, assuming VAT always applies when registration is actually threshold driven. Confirm both your ToT eligibility and your VAT registration position with the KRA before you choose, since the thresholds and rates here have been changing across recent Finance Acts.
Can I just pick whichever regime is cheaper?
Not freely. Turnover tax is only open to you when your turnover is inside the band and you meet the residency and eligibility rules the KRA sets, and some activities are excluded from ToT altogether. Within those limits there is an election to make, but it is not a casual month-to-month switch. Decide deliberately and keep records that support the regime you file under.
Why is the income tax figure lower than 30 percent of profit?
Because Kenya's income tax is progressive, not a single flat rate. The first slice of profit is taxed at 10 percent, the next at 25 percent, and only higher slices reach 30 percent and above, and then a personal relief is subtracted from the result. On KES 900,000 of profit the blended outcome is around KES 178,600 using the bands this calculator applies, well below a flat 30 percent. Confirm the current bands and relief with the KRA.