KRA issues accounting guidelines for Corporate Tax rates for 2020-2021

The Kenya Revenue Authority (KRA) has released guidelines outlining the applicable corporation tax rates for the years of income 2020 and 2021.

The guidelines will be used by corporations whose accounting periods ended in the Year of Income 2020 or are due to end in the Year of Income 2021. The lower rate of 25% was introduced in April 2020 as a tax relief to counter the negative effects of COVID 19 on business and employment incomes.

In a notice published by KRA Commissioner for Domestic Taxes, Mrs Rispah Simiyu, resident corporates with accounting periods ending on or before 30th March 2020 have been advised to apply the 30% rate.

However, such corporates will enjoy a reduced COVID relief rate of 25% for the income generated in the period 1st April 2020 and 31st December 2020. For income earned in the period on or after 1st January the applicable rate is 30%.

“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.”

Mrs Simiyu advised taxpayers to prepare their accounts, submit returns through the current iTax system and pay the correct amount of tax in the intervening period. She further clarified that “any erroneous penalties or interest that may arise’ in the intervening period “shall be corrected when the system is fully deployed,”

KRA’s guidelines are expected to clarify Corporation Tax rate changes introduced through the Tax Laws (Amendment) Act published on 25th April 2020 and the Tax Laws (Amendment) Act No. 2 of 2020 published on 24th December 2020, which provided for resident corporation tax rates of 25% and 30% respectively.

Last December, Corporation Tax recorded a performance rate of 93.5% against the target. The performance was negatively affected by a decline in instalment remittance from banks by 25.3% which reflects the impact of COVID on business performance.

The guidelines which are expected to clarify to taxpayers the treatment of corporation tax in the two years of income are expected to boost Corporation Tax performance this month through the submission of withheld declarations.

KRA is also forecasting a rebound from the ongoing implementation of the Post Covid-19 Economic Recovery Strategy 2020-2022, expected to accelerate revenue performance to achieve the forecast. Already, KRA has intensified compliance enforcement efforts by rolling out the implementation of the new tax measures including Digital Service Tax, Minimum Tax, Voluntary Tax Disclosure Programme. The programme is intended to provide relief through waiver of interest and penalties on disclosed tax liabilities that accrued in the period 2015 to 2020.

As part of its taxpayer support programme, KRA encourages constructive engagement with taxpayers and the public. Taxpayers are encouraged to use these avenues to seek any clarifications on matters relating to tax laws and procedures.

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