Application of Corporation Tax Rates for 2020 and 2021

Introduction of corporation tax rates changes

The Tax Laws Amendment Act 2020 published on 25^th April 2020 introduced a reduced corporate tax rate of 25% effective from 25^th April 2020. The Tax Laws Amendment Act (No.2) 2020 reverted the corporation tax rate to the old rate of 30% effective from 1^st January 2021.

Following clarification by Kenya Revenue Authority (KRA) through their 19^th 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 31^st March 2020	30%
30^th April 2020 to 31^st December 2020	25%

The above effectively means that any company with a year ended on 30^th April 2020 to 31^st 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 1^st 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 4^th 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 1^st 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.

Download Here: CORPORATION TAX RATES FOR 2020 AND 2021