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VAT and Turnover Tax (TOT) for Kenyan SMEs Explained

5 min read · Updated 15 October 2026 · More business tools

Kenyan small businesses deal with two different indirect taxes depending on their size: Value Added Tax (VAT) for larger, registered businesses and Turnover Tax (TOT) for smaller ones.

This guide explains the difference, when each applies, and how to add or extract VAT from a price.

VAT vs Turnover Tax

Feature	VAT	Turnover Tax (TOT)
Rate	16% (standard)	1.5% of gross sales
Who pays it	Registered businesses	Small businesses with KSh 1M–25M annual turnover
How it applies	Charged on sales, credited on purchases	Charged on turnover, not profit

Adding VAT to a price

To add VAT to a net price, multiply by 1.16. For example, a KSh 10,000 item becomes KSh 11,600 including VAT, and the VAT component is KSh 1,600.

Extracting VAT from a gross price

If you have a VAT-inclusive price and need to know the VAT portion, divide by 1.16 to get the net price, then subtract. For example, KSh 11,600 divided by 1.16 is KSh 10,000 net, so the VAT is KSh 1,600.

Good to know: This is where many businesses make errors when invoicing. Always confirm whether the price you were quoted already includes VAT.

Turnover Tax for small businesses

TOT is a simplified tax charged at 1.5% of gross monthly sales for resident businesses with annual turnover between KSh 1,000,000 and KSh 25,000,000 (below the VAT registration threshold). It is remitted monthly and is based on turnover rather than profit, so it applies even in months with low margins.

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