This is a form of tax that is paid by an individual or non-individual tax payer that is not fully covered under PAYE and is remitted periodically. It is paid by a tax payer whose annual tax liability is estimated to exceed Kes. 40,000.
Exceptions to instalment tax declaration; –
- Income derived from employment income which is taxed under Section 37 of the Income Tax Act.
- Minimum tax payable is higher than the instalment tax
- Total tax payable in any year of income is less than Kes. 40,000/=
Subject to turnover tax
Basis for computation of Instalment tax; –
Prior year basis – the income tax paid in the preceding year multiplied by one hundred and ten per cent (110%); or
Current year basis – especially for new businesses or those that were in losses and turned profitable, installment tax is determined by projecting the current year’s profit and tax payable thereon.
The Income Tax for the current year is paid on instalment basis as below;
1st Instalment – by 20th of the fourth month
2nd Instalment – by 20th of the sixth month
3rd Instalment – by 20th of the ninth month
4th Instalment – by 20th of the twelfth month
Balance of Tax (return balance) to be paid by end of the 4th month after the year-end. i.e. by 30th April for December year-end cases.
However, taxpayers in the Agricultural Sector pay in instalments as follows;
1st Instalment – 75% in the 9th month
2nd Instalment – 25% in the 12th month.
In projecting these amounts, the expected withholding tax and PAYE for the year is netted off in arriving at the net estimated tax liability for the year.
Penalty on late payment: 5% of the tax due.
Penalty on underpaying instalment tax: 20% of the difference between the amount of instalment tax payable in respect of a year of income and the instalment tax actually paid.
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