Kenyan corporation tax and instalments in the statements
How a Kenyan company's statements should present corporation tax, the instalment tax paid in the year and the balance owed at year end.
By Achekam · · 5 min read · For Accountants & audit firms in Kenya
A Kenyan company pays most of its corporation tax before its year has even ended. By the time the statements are drafted, four instalments have usually gone to KRA, the tax for the year has been estimated at least twice, and the final computation is still being prepared. The statements have to show all of that clearly: what the year's tax charge is, how much has already been paid, and what is still owed or refundable.
Errors here are common and visible. Instalments booked as an expense, a tax payable that ignores what was paid, a rate reconciliation that does not reconcile. This article sets out how the tax figures should flow into a Kenyan company's statements, and what Achekam does and does not compute for them today.
The corporation tax charge and the special regimes
At the time of writing, Kenyan resident companies, and non-resident companies with a permanent establishment in Kenya, pay corporation tax at 30%. Special regimes exist, for example for export processing zones, special economic zones and companies in the Nairobi International Financial Centre, and a company in one of them is taxed differently.
Confirm the company's regime before drafting the note. A company that has moved into or out of a special regime during the year, or whose incentive period has ended, will have a charge that does not follow the standard rate, and the reconciliation must explain why.
The tax charge in the income statement normally has three parts:
| Component | What it is |
|---|---|
| Current tax for the year | Tax on this year's taxable profit |
| Adjustments for prior years | Under- or over-provisions found when last year's return was finalised |
| Deferred tax | Movement in temporary differences, such as accelerated tax deductions on assets |
Instalments paid during the year against the liability
Kenyan instalment tax is due on the 20th day of the 4th, 6th, 9th and 12th months of the company's year, based on the lower of 110% of the previous year's tax or the estimate for the current year. KRA's page on instalment tax explains who pays it, the prior-year and current-year methods for estimating it, and the four due dates.
In the books and the statements, an instalment is a payment, not an expense. It reduces the company's liability for the year's tax. Booking instalments to an expense account, and then also recognising the year's charge, double-counts tax; it is one of the commonest errors a reviewer finds in a Kenyan file.
The correct picture at year end is:
- The year's current tax charge recognised in profit or loss.
- The instalments paid during the year set against that liability.
- The difference shown as current tax payable, or as a current tax asset if the instalments exceed the charge.
In the cash flow statement, tax paid, meaning instalments plus any balance paid for the previous year, normally appears in operating activities.
The tax rate reconciliation for a Kenyan company
The note should reconcile the tax charge to the accounting profit multiplied by the applicable rate. Typical reconciling items for a Kenyan company include:
- expenses the tax law does not allow as deductions;
- income not taxable, or taxed at a different rate;
- the effect of a special regime rate, where it applies;
- under- or over-provisions in respect of prior years;
- deferred tax not recognised, such as on losses where recovery is uncertain.
A reconciliation that leaves an unexplained "other" line is not finished. If the difference is material, find it.
Add a tax payable reconciliation alongside it: opening balance, the year's charge, payments made (the prior year's balance and this year's instalments), and the closing balance. It shows the reader exactly how the year-end liability arose, and it is the reviewer's best check that instalments have not gone astray.
The balance due with the return after year end
A Kenyan corporation tax return is due within 6 months after the year end. The return finalises the year's liability, and any balance not covered by instalments must be paid by the date KRA sets; confirm the payment date for the year concerned rather than assuming it matches the filing date.
At the date the statements are approved, the return may not yet be filed. The current tax payable in the statements is then an estimate, and any difference from the final computation appears next year as a prior-year adjustment. Keep the computation that supports the year-end figure on file, so next year's adjustment can be explained. The instalment and filing calendar in more detail is covered in Kenyan corporation tax and instalment dates.
What Achekam computes once its Kenyan rules are approved
Two parts of Achekam are relevant.
The statements. The Studio includes standard accounting policy wording based on IFRS for SMEs, labelled for review before issue, and staff can write their own policies. Notes take their figures from the mapped trial balance, so the tax note's current tax, deferred tax and tax payable come from the accounts they are mapped from. Facts the trial balance does not hold, such as the individual items in the rate reconciliation, are left as '[to be completed]' for a person to fill in, and a line carries a note reference only when that note is in the set. Map the instalment tax account to the tax payable line, not to an expense, and the presentation follows. Policy and note wording in general is covered in accounting policies and notes.
The tax computation. Once its rules are approved, Achekam computes Kenyan corporation tax, instalment tax, VAT, withholding tax, turnover tax, capital gains tax and stamp duty; extractive, petroleum and non-resident digital profiles are refused as needing an assessment. But every Kenyan tax figure in Achekam's rule book was seeded 'under review', and Achekam computes nothing from a figure until an Achekam platform administrator approves it. Until the relevant rules are approved, the firm prepares the computation itself.
A worked example in words: a Kenyan manufacturer paid four instalments based on 110% of last year's tax. This year's profit fell, so the computed charge is lower than the instalments paid. The statements show the year's charge as an expense, the instalments set against it, and a current tax asset for the excess, with the tax payable reconciliation showing each payment.
Before the draft goes to review
Check three things on every Kenyan tax note: instalments are set against the liability and not expensed, the rate reconciliation explains the charge without an unexplained balance, and the tax payable reconciliation agrees to the instalments in the bank statements.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
