Installment tax is advance tax which is payable during the year of income. This is done before the accounts are done and finalized at year end in order to establish the actual tax payable.
Instalment tax is calculated as the lesser of:
Prior year basis – Prior year tax payments are multiplied by 110%
Current Year basis – By estimating the current year profit and tax payable thereon.
Most businesses use current year basis as it is simpler for new business or those who were previously in losses and have now turned to profitability.
The installments are spread evenly at 25% of the tax due and are payable on the 20th day of the 4th, 6th, 9th and 12th months after the year end.
However, taxpayers in the agricultural sector pay in installments of 75% in the 9th month and 25% in the 12th month. The first instalment tax for agricultural companies with a December year end is due for payment by 20th September 2021.
It is always important to calculate the instalment taxes properly and to make timely payment to avoid instances of underpayment or late payment of instalment taxes which attracts penalty at 5% of the tax due and interest of 1% per month outstanding.
Property Boutique has a fully-fledged tax law advisory business unit that offers a vast range of tax services. Our highly qualified and experienced personnel will assist you with your tax matters and ensure that your business is tax compliant and assist you to analyse and mitigate any tax risks or exposure.
For more information and assistance on the above, please contact our tax advisory team through email at info@propertyboutique.co.ke
