Installment Tax Return in Kenya

(Ref: Income tax act, sec 12)

Installment tax return allows taxpayers to pay tax as the current year of income progresses. The installment tax should be submitted as follows

For ordinary taxpayers

1^st installment to be submitted by the 20^th of the fourth month

2^nd  installment to be submitted by the 20^th of the Six month

3^rd  installment to be submitted by the 20^th of the Ninth month

4^th  installment to be submitted by the 20^th of the Twelfth Month

NB: each installment is 25% of the estimated tax and the balance is paid as self-assessment tax on the last day of the fourth month in following year.

A provisional return of income for any year of income –

For agricultural taxpayers:

1^st installment is due on 20^th of the 9^th month, 75% of the estimated amount is paid

2^nd installment is due on 20^th of the 12^th month, 25% of the estimated amount is paid

Illustration

Bee limited reported taxable profits of Sh 90 Million for the year ended 31 December 2022. During the year 2021 their net tax liability was Shs. 24M.

Required: Show the due dates and amount payable under installment tax and self-assessment tax.

Solution:

Amount payable per installment =24(110/100) = 26.4 x25%= 6.6M

Installment	Due date	Amount Shs.M
First	20th April 2022	6.6
Second	20th June 2022	6.6
Third	20th September 2022	6.6
Fourth	20th December 2022	6.6
Total installments		26.4
Self assessment tax	30th April 2023	0.6
Tax for the year	30% of 90M	27

Penalty for underestimating installment tax- Section 72 (C) Income tax act

The estimated installment is based on

Previous year’s tax liability plus 10% i.e 110% of previous year’s tax liability or,

Tax payers own estimate if he considers the above estimate not appropriate

Note: Under estimating the installment tax will attract a penalty computed as follows

P= 20% (Actual tax liability- 110% of estimated instalment tax)

Failure to pay installment tax will attract a penalty at 20% of the outstanding tax plus interest at 2% compounded.

Illustration:

ABC limited tax liability for 2021 amounted to Shs. 1,200,000 which they used to estimate the installment tax for 2022. The actual tax liability for 2022 was 1,800,000.

Compute the penalty for under estimating the tax.

Solution:

Estimated installment tax (B) = 1200,000 x110/100 = 1,320,000

Actual tax liability = 1,800,000

Therefore the penalty for underestimation is

P= 20% of (1800,000- 1320,000)= 96,000