Introduction of corporation tax rates changes
The Tax Laws Amendment Act 2020 published on 25th April 2020 introduced a reduced corporate tax rate of 25% effective from 25th April 2020. The Tax Laws Amendment Act (No.2) 2020 reverted the corporation tax rate to the old rate of 30% effective from 1st January 2021.
Following clarification by Kenya Revenue Authority (KRA) through their 19th January 2021 Public Notice, income earned by companies will be taxed as follows:
Corporation tax rates for the year 2020
The corporation tax rates shall be applicable as follows:
Accounting period ended
Rate - %
On or before 31st March 2020
30th April 2020 to 31st December 2020
The above effectively means that any company with a year ended on 30th April 2020 to 31st December 2020, will be subject to 25% tax for the period ended on that date. This is in line with RSM’s interpretation
Corporation tax rates for the year 2021
For companies whose accounting period ends after 1st January 2021, the corporation tax rates shall be applied as follows:
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However, if current year basis is lower, then quarterly instalment tax will be calculated using estimated taxable income for the year and the tax rate applicable for the purposes of computing current year instalment taxes will be 30% for ease of administration. Since the 4th instalment tax falls due at the end of a company’s financial year, the company is in a better position to determine the total tax liability payable. Therefore, the tax liability can be computed using the different rates as provided in the above table, and any overpayments that may have resulted from paying instalment taxes using current year basis can be used to reduce the tax payable towards the 4th instalment tax.Instalment taxes payable quarterly will continue to be calculated at 110% of the tax liability of the preceding year if using prior year basis.
In apportioning the income, the taxpayer shall work out the annual taxable income and apportion this based on the number of months’ the accounting period straddles between 2020 and 2021, and apply the tax rates applicable to each year of income.
Please note that minimum tax at 1% of gross turnover also needs to be considered from 1st January 2021 against the instalment taxes payable in 2021. Where minimum tax for the quarter is higher than instalment tax, minimum tax shall be payable.
KRA is in the process of changing the iTax system to incorporate the new rates effectively. Any erroneous penalties and interest if validated shall be corrected when the rates are fully effective.