How to Pay Installment Tax in Kenya

This article provides a detailed guide on how to pay installment tax in Kenya. Installment tax is an estimated income tax paid periodically to the Kenya Revenue Authority (KRA) in anticipation of the tax payable for a year of income. This form of advance tax is governed by the Income Tax Act Cap 470, Laws of Kenya.

What is Installment Tax?

Installment tax involves making advance payments towards your annual tax liability. These payments are made in four equal installments throughout the year, prior to the finalization of the business accounts and the determination of the actual tax payable.

Who Should Pay Installment Tax?

Installment tax is applicable to individual taxpayers with a tax liability that exceeds Kshs 40,000 in any given year, and this liability is not fully covered under the Pay As You Earn (PAYE) system. The projection for installment tax payments is typically done at the start of the financial year, considering expected withholding taxes to estimate the net tax liability.

How to Calculate Installment Tax

There are two primary methods to calculate installment tax:

1. Prior Year Basis
   • This method involves using the prior year’s tax payments. The formula is: Prior Tax Payments×100% and 10%\text{Prior Tax Payments} \times 100\% \text{ and } 10\%Prior Tax Payments×100% and 10%
2. Current Year Basis
   • This method is ideal for new businesses or those that have recently become profitable. It involves estimating the current year’s profit and the tax payable on that profit.

Steps to Pay Installment Tax

1. Log in to iTax
   • Access the iTax portal using your credentials.
2. Click on Payment Registration
   • Navigate to the payment registration section.
3. Select Installment Tax
   • Choose the option for installment tax from the available tax types.
4. Fill in the Required Details
   • Complete the necessary information as prompted by the system.
5. Generate a Payment Slip
   • Once all details are filled, generate a payment slip.
6. Make Payment
   • Present the payment slip along with a cheque drawn in favor of the Kenya Revenue Authority at any partner bank.

Penalty for Late Payment

Failure to pay installment tax on time incurs a penalty. The penalty is calculated as 20% of the difference between the installment tax payable for the year of income and the actual installment tax paid.

KRA Contact Information

For further assistance or inquiries, you can reach out to the Kenya Revenue Authority through the following contact details:

• Phone: +254 20 4 999 999, +254 711 099 999
• Email: [email protected]

By following these steps and understanding the requirements, you can ensure timely and accurate payment of installment tax in Kenya.