INSTALMENT TAX

Instalment tax is a tax imposed under the income tax regime, payable by every person chargeable to tax or who has paid provisional tax in the year of income.

What is the threshold for payment of instalment tax?

Instalment tax is only payable where the total tax payable for the year of income is more than Ksh 40,000.

Who is exempted from the instalment tax?

A taxpayer is not required to pay instalment tax if:

1. The minimum tax payable under the minimum tax regime is higher than the instalment tax.
2. The taxpayer reasonably believes that the whole of the tax payable by him under emoluments is recoverable.

What is the amount of instalment tax payable?

The amount of instalment tax payable for any current year of income is the lesser of:

1. The amount equal to the tax that would be payable by the taxpayer if his total income for the current year is an amount equal to his instalment income; or
2. The amount specified in the preceding year’s assessment multiplied by 110%.

The amount of tax determined under either (1) or (2) should be reduced by any advance tax (under the advance tax regime), withheld tax (under the withholding tax regime), or deductions from emoluments.

What is the due date for the instalment tax?

Instalment tax is payable on the 20^th day of the fourth month (25%), sixth month (25%), ninth month (25%) and twelfth month (25%) of the current year of income.

However, in the case of income derived from pastoral, agricultural, horticultural, or similar activities, the instalment tax is payable on the 20^th day of the Ninth (75%) and twelfth months (25%).

Which information should accompany the payment of the instalment tax?

1. A declaration of choice of method used in computing the instalment tax.
2. Where the tax is computed based on the estimate, on the current year of income, the total income of the person making the payment for the current year of income.
3. Where the tax is computed based on the preceding year’s assessment, the amount of tax assessed for the preceding year.
4. A declaration that the instalment payment is full and a true estimate to the best of the person’s knowledge.

Consequences for non-payment of the instalment tax

After expiry of the time allowed for payment of the instalment tax, the Commissioner make an instalment assessment against the taxpayer who fails to pay the instalment tax.

NOTE: This article does not constitute a legal opinion and is meant for information purposes only.

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