Capital Allowances for Investments in Kenya

  

Date Posted: 10/17/2012 8:06:20 AM

Posted By: moff J  Membership Level: Silver  Total Points: 485

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Taxation is for sure one of the major consideration by nay investor. Before making an investment decision, an investor has to consider the tax rates and the tax laws in a region. Kenya Revenue Authority is under great pressure to raise funds to finance the budget. Taxation is therefore becoming a major variable more so in Kenya even as the tax collector tries to meet targets which are proving hard to meet. This points to a situation where the revenue authority is going to tighten its noose and make sure that all persons pay their taxes.
This however does not mean that investors have to be afraid of investing in Kenya. There are a number of tax incentives which the government provides to companies to encourage businesses to set up their operations in the country.
These incentives include the following:
1. Capital allowances- these are tax incentives offered for capital expenditures. They are tax allowable and this means that a company will not be taxed on them.
They include wear and tear allowances, industrial building deduction, investment deduction and farmworks deductions.
The wear and tear allowances are charged on capital expenditure on machinery and equipment where they are classified into five classes all of which are offered the allowances at different rates.
Class 1 –includes heavy earth moving equipment and self propelling vehicles e.g. lorries above 3 tonnes, forklifts, trucks. The rate is 37.5 % p.a.
Class 2 e.g. computers, photocopiers, scanners. The rate is 30%
Class 3- includes light self propelling vehicles and other machines such as aircrafts, motorbikes, lorries under 3 tonnes. The rate is 25%.
Class 4- examples are telephone sets, switch boards, bicycles. The rate is 12.5%

Industrial building deduction is an allowance granted to an investor who incurs capital expenditure on industrial building.

Investment deduction-this is an allowance to an investor who incurs capital expenditure

on industrial building and machinery used for manufacturing.
Here the investor can claim as much as 100% capital allowance. For capital expenditures intended for manufacturing purposes exceeding sh.200 million set up outside Nairobi, Kisumu or Mombasa, the investor can claim 150% allowance.

Farmworks deductions is a capital allowance granted to a farmer who incurs capital expenditure on the construction of farmworks. A farmwork is any structure constructed to enhance the operations of a farm.

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