Accounting for Corporate Tax

ADDRESSING THE CHANGES IN THE RATE FOR CORPORATE TAX

On 25^th April 2020, the  Tax Laws (Amendment) Act of 2020 as assented into law. In order to businesses from the adverse effects of the outbreak of the coronavirus, it reduced the 25^{th of} April reduced the corporate tax rate from 30% to 25%. However, this was only applicable to resident entities.

On 24^th December 2020, the Tax Laws (Amendment) Act no. 2 of 2020 was published. In the government’s strategy for economic recovery, the 25% corporate tax rate was reinstated to 30% as it was before the outbreak of Covid-19 pandemic.

Accounting for Corporate Tax

1. For businesses whose accounting period ended on 31^st March 2020, their profits will be taxed at the rate of 30%.
2. For businesses whose ending accounting period is between 1^st April 2020 and 31^st December 2020, their profits will be taxed at the rate of 25%.
3. For business whose accounting period ends after 1^st January,2021, their incomes will be apportioned and use 25% on the income earned up to 31^st December 2020 whereas 30% will be used for income earned after 1^st January, 2021.

Income derived by non-resident entities and branch profits are still subject to corporate tax at the rate of 37.5%The corporate tax rate for the income derived by the non-resident entities and branches at 37.5%.

Key Notes

• The configuration of the i-tax system is undergoing enhancement to be able to accommodate both the 25% rate and the 30% rate.
•  Some businesses are obliged to file their returns using the current i-tax system before it is fully upgraded. They are required to compute for and pay the correct income tax.
• Upon validation, waivers shall be granted on any penalties and interest charges resulting from the integration of the updated system.