1. WHO IS A SMALL BUSINESS TAXPAYER?

A Small Business Taxpayer for income tax purposes is a resident taxpayer whose gross turnover from all businesses owned by such a person in a year is more than five million but does not exceed FIFTY MILLION SHILLINGS.
The term TURNOVER refers to one’s total sales in a year.

2. PERSONS NOT INCLUDED

Not included in this category of taxpayers even when the TURNOVER is less than fifty million shillings are persons carrying on the following businesses:
(a) Medical practice
(b) Dental practice
(c) Architectural service
(d) Engineering service
(e) Accounting practices
(f) Legal practice
(g) Any other professional services
(h) Public entertainment services
(i) Public utility service
(j) Construction service
NOTE:             Persons falling under the above listed business categories OR whose gross  turnover is above FIFTY MILLION shillings in a year are required by law to file final and provisional income Tax returns and be assessed to tax the normal way which is based on Net income for the year and progressive rates of tax.

3. COMPUTATION OF THE TAX LIABILITY

The tax payable is calculated and determined on the basis of the different thresholds provided in the Second Schedule or one percent of the gross turnover. In the case of a taxpayer whose gross turnover is above five million shillings but does not exceed Twenty Million Shillings a year, the tax payable is fixed at shs.100, 000 a year.

Tax rates for Small Business Taxpayers are contained in Table I below:

GROSS TURNOVER	TAX PAYABLE
Gross turnover exceeds 5 million but does not exceed Shs. 20 million a year.	Shs. 100,000
Gross turnover exceeds Shs. 20 million but does not exceed Shs. 30 million a year.	Shs. 250,000 or 1% of gross turnover, whichever is the lower.
Gross turnover exceeds Shs. 30 million but does not exceed Shs. 40 million a year.	Shs. 350,000 or 1% of gross turnover, whichever is the lower.
Gross turnover exceeds Shs. 40 million but does not exceed Shs. 50 million a year.	Shs. 450,000 or 1% of gross turnover, whichever is the lower.

ILLUSTRATIONS
A. Bracket (Shs 20 million - Shs. 30 million)

Example I: Assume one’s gross turnover is Shs 22 million:

1% of Shs 22 million equals Shs 220,000 which is less than Shs 250,000

Therefore tax payable is Shs 220,000

Example II: Assume one’s gross turnover is Shs 28 million:

1% of Shs 28 million equals Shs 280,000 which is more than Shs 250,000

Therefore tax payable is Shs 250,000

B. Bracket (Shs 30 million - Shs. 40 million)

Example I: Assume one’s gross turnover is Shs 34 million:

1% of Shs 34 million equals Shs 340,000 which is less than Shs 350,000

Therefore tax payable is Shs 340,000

 Example II: Assume one’s gross turnover is Shs 39 million:

1% of Shs 39 million equals Shs 390,000 which is more than Shs 350,000
 Therefore tax payable is Shs 350,000
 C. Bracket (Shs 40 million - Shs. 50 million)

Example I: Assume one’s gross turnover is Shs 43, 580,000:

1% of Shs 43,580,000 equals Shs 435,800 which is less than Shs 450,000

Therefore tax payable is Shs 435,800

Example II: Assume one’s gross turnover is Shs 48,700,000:

1% of Shs 48,700,000 equals Shs 487,000 which is more than Shs 450,000

Therefore tax payable is Shs 450,000

4. RETURN OF GROSS TURNOVER

In order to enjoy the benefit of paying the LOWER tax in each bracket, a taxpayer is  required to file a return of Gross turnover for a given year. Otherwise a taxpayer will automatically be assessed to the standard tax in the tax bracket in which such taxpayer falls as contained in the Table I above.

5. (a) FINALITY OF TAX

The tax computed on the basis of GROSS TURNOVER is a final tax on the taxpayer’s business income, unless the taxpayer opts that his/her income tax    payable should be calculated by applying the relevant rates of tax determined    under the Income Tax Act to the chargeable income for the year. This means that no further assessment is required.
Also note that no deductions are allowed in respect of any expenditure or losses incurred in the production of the business income.

(b) Tax Credit

No tax credit is allowed to be set off against the final tax except in the following cases:-
(i) A tax credit arising out of withholding tax paid in respect of amounts included in the gross turnover of the taxpayer.

7. ELECTION (OPTION) FOR INCOME TAX ASSESSMENT

(i)    The law provides for an option in writing notifying the Commissioner that the taxpayer prefers (opts) his/her income tax payable to be calculated by applying the relevant rates of tax determined under the Income Tax Act to the chargeable income of the taxpayer for the year of income.

(ii)   Note that any tax credits allowed to the taxpayer would then be subtracted from the  income tax determined in (i) above. 

(iii)  In order to qualify, a taxpayer is required to submit the election notice together with his/her Annual Income Tax Return for that year by the due date of filing such return.

DISCLAIMER: This Information is strictly for purposes of guidance to our clientele and is subject to change on amendment of tax legislations & any other regulations that govern tax administration.