Companies face a complex, three-tiered tax filing process


Companies face a complex, three-tiered tax filing process

In Summary

  • This follows complications occasioned by changes in the corporate tax rate regime following government relief measures to cushion against the COVID-19 pandemic.
  • According to the Kenya Revenue Authority (KRA) resident corporates with accounting periods ending on or before March 30.2020 will apply the 30 per cent tax rate.
  • Corporates will however enjoy the reduced rate of 25 per cent for income generated between April 1 and December 3, while the 30 per cent rate will apply for incomes on and after January 1.

Companies are looking at a complex and three-tiered tax filing process for corporate tax payments covering income earned across last year and 2021.

This follows complications occasioned by changes in the corporate tax rate regime following government relief measures to cushion against the COVID-19 pandemic.

In April last year, the rate of corporate tax fell to 25 per cent from a previous 30 per cent but returned to the higher limit on January 1 this year.

This means companies will have to make distinct tax disclosures covering each period of change.

According to the Kenya Revenue Authority (KRA) resident corporates with accounting periods ending on or before March 30, 2020 will apply the 30 per cent tax rate.

Corporates will however enjoy the reduced rate of 25 per cent for income generated between April 1 and December 3, while the 30 per cent rate will apply for incomes on and after January 1.

“Taxpayers whose accounting period ends after 1st January 2021, shall determine the income for the accounting period and apportion the same between the two periods and charge the applicable rates,” Mrs Simiyu said, adding that, “the process of enhancement of the iTax System is already underway to incorporate this interpretation,” KRA Domestic Taxes Commissioner Rispah Simiyu said in a statement on Wednesday.

The new guidelines are expected to clarify to taxpayers, the treatment of corporation tax in the two years of income.

The regime will however lead to complexities particularly for firms which have already accounted for the corporate tax.

A report by consultancy firm KPMG had foreboded challenges in accounting for corporate tax in December.

“The proposed provision will introduce challenges during the computation of the 2020 annual tax liability and filing of tax returns given that it is expected that resident companies will be required to apportion their income prior to determining the annual tax position,” KPMG stated in the report.

“The provision also appears to retrospectively change the application of the 25 per cent rate especially for taxpayers who have already filed their tax returns based on the 25 per cent tax rate.”

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Story By Kepha Muiruri
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