Installment Tax

Installment tax is an estimated income tax paid in advance in four equal installments in anticipation of the tax payable in the year of income. Installment forecasts are normally made at the beginning of the financial year. 

It is paid before the year of income is over and before the accounts of the business are prepared to establish the actual tax payable for that year. The proceeds of the tax paid in this manner are applied to reduce the amount of income tax payable for the year of income.

In Kenya, individual taxpayers with annual tax liability expected to exceed more than Kshs. 40,000 are required to pay the tax in installments and all non-individual taxpayers irrespective of the amount of income tax they pay in a year of income are expected to pay income tax on the installment basis.

Business taxpayers registered with Turnover Tax (TOT) are exempted from paying the tax.

Prior Year Basis

The tax paid in the previous year is multiplied by 110%.

Current Year Basis

This method calculates installment tax by estimating the current year's profits and the tax payable on them, especially for new businesses or loss-making businesses.

Installments are payable on the 20th of  4th, 6th, 9th and 12th month of the income year in equal installments of 25% of the tax payable for all taxpayers except the agricultural sector.

Agricultural taxpayers pay a tax rate of 75% in the 9th month and 25% in the 12th month. 

Late payment of installment taxes attracts a penalty at 5% of the tax due and interest of 1% per month of the outstanding payment.