+44 (0)131 610 7627 info@smar-azure.com
Select Page

What Is Third Instalment Tax in Kenya

A natural person (with the exception of those whose entire taxable income has been taxed at source) whose tax payable exceeds KES 40,000 per year must pay four instalment payments by 20 April, 20 June, 20 September and 20 December at the latest. The staggered tax due on each due date is 25% less than the tax less than 110% of the tax imposed in the previous year or the estimated tax payable by the taxpayer for the current year. Taxpayers who were liable for less than the minimum tax payable because of the staggered tax they had to pay would now have to pay a tax in instalments. Installment tax for taxpayers whose fiscal year ended December 31, 2020 is due on April 20, 2021. These taxpayers can deduct instalment tax from the minimum tax payable if the High Court decides that the tax is legal and constitutional. Taxpayers who are unable to require payment of the deposit should await the decision of the High Court and, if possible, provide for the minimum amount of tax in their books. It should be noted that the Tax Procedure Act also authorizes the KRA, with the consent of the Secretary of the Cabinet for Finance, to refrain from collecting unpaid taxes in the event of difficulties or injustices related to the collection of an unpaid tax. Income tax for the current year is paid on a staggered basis as follows; Agricultural businesses must pay taxes estimated in two instalments of 75% and 25% during the year. Any tax balance at the end of the fiscal year must be paid within four months of the end of the fiscal year. However, taxpayers in the agricultural sector pay in several instalments as follows: The minimum tax has been abolished with effect from 1. January 2021 and is payable at the rate of 1% of a person`s turnover if the installment tax due by that person is less than the minimum tax payable. The minimum tax does not apply to (i) persons whose income is exempt from income tax, (b) persons whose income is subject to payroll tax, residential rent tax, sales tax or capital gains tax, (c) income due under the Ninth Schedule to the Income Tax (Extractive Industries) Act, (d) persons engaged in a commercial activity whose retail price is controlled by the government, and (d) persons, who are active in the insurance sector.

. The majority of employee taxes are paid by withholding salaries and benefits under the PAYE system. Any new tax liability is based on self-assessment and must be incurred by 30 September at the latest. April after the income year to which the liability relates. The APT also harmonises and consolidates the rules of tax procedure. For example, the TPL states that a taxpayer must keep records for five years. Previously, various tax laws, such as the VAT Act, 2013, the Income Tax Act and the Excise Tax Act, prescribed different time limits within which records should be kept by a taxpayer. Given that this is a relatively new tax law, there are some inconsistencies when you reflect the TPL and other tax laws, although we expect these inconsistencies to be resolved over time.

Previous Year`s Basis – Previous year`s tax payments are multiplied by one hundred and ten percent. There is no prescribed audit process, as an audit can be triggered by various factors determined by the KRA. In general, tax audits should be carried out every two to four years. The audit or inspection begins with an AHR request to the taxpayer to provide the necessary records or information. Resident corporations and PEs of non-resident corporations must file an annual self-assessment tax return. The tax return is accompanied, among other things, by a tax calculation and an annual financial statement. Performance is due within six months of the end of a company`s fiscal year. Ernst & Young Société d`Avocats, Pan African Tax – Transfer Pricing Desk, Paris The amendment aims to encourage manufacturers to supply supplies to state-funded projects by allowing them to claim input VAT that they could not claim before, as the supplies are exempt from tax and suppliers therefore were not entitled to: to claim the associated input tax. ———————————————CONTACTS The removal of the tax exemption and contribution deductions from a HOSP will prevent the use of such plans for home ownership, which is not in line with the objective of the government`s program to improve access to housing. In addition, the introduction of a voluntary tax disclosure program, which runs from January 1, 2021 for a period of three years, offers organizations the opportunity to fill previous gaps in tax returns and payments. The tax withheld on payments must be paid no later than the 20th day of the month following the month in which the deduction is made. Other crucial tax changes that came into effect on January 1, 2021, the bill had proposed a limit on the period during which the reduced IRS rate of 25% would apply, but this was abandoned by the National Assembly.

The reduced IRS rate applies to income earned in the 2020 income year. . Current Year Basis – In this method, especially for new businesses or those that have suffered losses and have been converted into a profit area, the instalment tax is determined by estimating the profit of the current year and the tax payable on it. . Installment tax is the estimated income tax that is regularly paid to KRA in anticipation of the tax payable for one year of income. Staggered tax is a form of withholding tax administered under the Income Tax Act Cap 470, the laws of Kenya. The instalment tax is paid in advance in four equal instalments. It is paid before the end of the income year and before the company`s accounts are prepared to determine the actual tax payable. The information contained herein is of a general nature and should not be construed as legal, accounting or tax advice or an opinion of Ernst & Young LLP to the reader. The reader is also cautioned that such material may not be applicable or appropriate to the reader`s specific situation or needs and may require consideration of non-tax and other tax factors if an action is to be considered. The reader should contact their LLP.C or other tax professional before taking any action based on this information.

Ernst & Young LLP assumes no obligation to inform the reader of any change in tax laws or any other factor that may affect the information contained herein. This is a tax paid by natural taxpayers who have a tax liability that is not fully covered by the PAYE, of more than 40,000 Kshs, payable for one year. This alert summarizes the tax proposals contained in the law and provides an overview of other key tax changes that came into effect on January 1, 2021 […].