All Repealed by (TaxLAA-No1-2020 wef-25April2020) for Investment Allowance
PART I -
DEDUCTIONS IN RESPECT OF CAPITAL EXPENDITURE ON CERTAIN BUILDINGS
Finance Act 2009 Effective 01 January 2010
(cc) in a case referred to in paragraph 1(1)(a) for the year of income commencing on or after 1st January, 2010, ten per cent;
Finance Act 2006 Effective 1 January 07
(d) In a case referred to in paragraph 5(1)(c) and 5(1)(e) for the year commencing on or after the 1st January 2007, one tenth.
Finance Act 2009 Effective 01 January 2010
(dd) in a case referred to in paragraph 5(1)(e) for the year of income commencing on or after 1st January, 2010, fifty per cent.
Finance Act, 2015 Effective 1st Jan 2016 Provided that in the case of a building in use for the training of film producers, actors or crew, the rate of deduction shall be one hundred percent.
Finance Act 2007 Effective 1 January08
(e) in the case referred to in paragraph 5(1) (f) for the year commencing on or after the 1st January, 2008, five per cent;
Finance Act 2009 Effective 01 January 2010 Finance Act 2010 Effective 01 Jan 2011 Finance Act 2012 01 January 2013
(ee) in a case referred to in paragraph 5(1)(f) for any year of income commencing on or after 1st January 2010, where roads, power, water, sewers and other social infrastructure have been provided by the person incurring the capital expenditure, twenty- five percent.
___of that expenditure shall be made in computing the gains or profits of that person for any year of income in which the building is so used:
Provided that -
Increase of deductions.
Ascertainment of residue of expenditure.
Sale of building prior to use.
Finance Act 2006 Effective 1 January 07 Finance Act 2009 Effective 01 January 2010
(e) a building in use as a hostel or an educational building ,or a building in use for training, provided such building has been certified by the Commissioner for the purposes of this paragraph;
Finance Act 2007 Effective 1 January 08
(f) a building in use as a rental residential building where such building is constructed in a planned developed area approved by the Minister for the time being responsible for matters relating to housing.
Finance Act 2009 Effective 01 January 2010 Finance Act 2012 01 January 2013
(ff) Deleted
Interpretation
6A
(1) Where a person incurs capital expenditure on the construction of a commercial building to be used in a business carried on by him or his lessee on or after the 1st January, 2013, and the person has provided roads, power, water, sewers and other social infrastructure, there shall be deducted, in computing the gains or profits of that person for any year of income in which the building is so used, a deduction equal to twenty five percent per annum.
(2) For the purpose of this paragraph “commercial building” includes a building for use as an office, shop or showroom but shall not include a building which qualifies for deduction under any other paragraph or a building excluded for industrial building deduction under paragraph 5(3) of this Schedule.
Wear and tear deductions
PART II: DEDUCTIONS IN RESPECT OF CAPITAL EXPENDITURE ON MACHINERY
PART II: DEDUCTIONS IN RESPECT OF CAPITAL EXPENDITURE ON MACHINERY
7.
Finance Act, 2014 Effective 01 January 2015
(cc) Petroleum pipeline;
and the appropriate percentage shall be 37.5 per cent for the class of machinery in subparagraph (a) subparagraph (cc) or (d) subparagraph (a), 30 percent for the class of machinery in subparagraph (b), 25 percent for the class of machinery in subparagraph (c) and 12.5 percent for the class of machinery in subparagraph (d) subparagraph (cc) or (d);
Finance Act 2009 Effective 01 January 2010
(4) For telecommunication equipment purchased and used by a telecommunication operator, other than machinery specified under subparagraph (3) (d), the amount of wear and tear for a year of income shall be twenty per cent of the amount of expenditure incurred.
Ascertainment of written down value.
8.
8.
Application to lessors.
9.
9.
Expenditure on buildings in connection with the installation of machinery.
10.
10.
Balancing deductions and balancing charges.
Effect in certain successions, transfers, etc.
12.
12.
Special provisions as to certain sales.
13.
13.
Private use.
14.
14.
Expenditure on private vehicles.
15.
15.
(5) Where capital expenditure of a kind referred to in subparagraph (1) is incurred on or after the 1st January, 1998, that subparagraph shall be read as though the expression "one million shillings" were substituted for "thirty thousand shillings" wherever the latter expression occurs.
Finance Act 2005 Effective 1 July 05 and 1 Jan 06 Finance Act 2005 24 Nov. 05
(6) Where capital expenditure of a kind referred to in subparagraph (1) is incurred on or after the 1st January, 2006, that subparagraph shall be read as though the expression “two million shillings” were substituted for “thirty thousand shillings” wherever the latter expression occurs.
PART III: DEDUCTIONS IN RESPECT OF MINING OPERATIONS
PART III: DEDUCTIONS IN RESPECT OF MINING OPERATIONS
16.
Deductions.
17.
17.
Apportionment of deductions.
18.
18.
(b) the transferee shall, to the exclusion of the transferor, be entitled, where the interest transferred is in the whole of the asset, to the whole of the deduction for a subsequent year of income, and where the interest transferred is in part only of the asset, to so much of the deduction as the Commissioner may determine to be just and reasonable.
Operations on separate mines treated separately.
19.
19.
Expenditure incurred by persons not engaged in business of mining.
20.
20.
Sum received by vendor treated as trading receipts.
21.
21.
Deductions in respect of capital expenditure on farm works.
PART IV
- DEDUCTION IN RESPECT OF CAPITAL EXPENDITURE ON AGRICULTURAL LAND
22.
PART IV
- DEDUCTION IN RESPECT OF CAPITAL EXPENDITURE ON AGRICULTURAL LAND
22.
(a) Where in any year of income commencing on or after the 1st January 1985, the owner or tenant of agricultural land incurs capital expenditure on the construction of farm works, there shall be made, in computing his gains or profits for that year of income and the two following years of income a deduction equal to one-third of that expenditure.
(b) Where in any year of income commencing on or after 1 January 2007, the owner or tenant of agricultural land incurs capital expenditure on the construction of farm works, there shall be made in computing his gains or profits for that year of income and the following year of income a deduction equal to one-half of that expenditure.
Finance Act 2010 Effective 01 Jan 2011
(c) Where in any year of income commencing on or after 1 January, 2011, the owner or tenant of agricultural land incurs capital expenditure on the construction of farm works, there shall be made, in computing his gains or profits for that year of income, a deduction equal to one hundred percent of that expenditure.
(b) is incurred on assets other than a farmhouse, being an asset which is to serve partly the purpose of husbandry and partly other purposes, then only such proportion thereof as the Commissioner may determine to be just and reasonable shall be taken into account for the purposes of this paragraph.
(b) the transferee shall, to the exclusion of the transferor, be entitled, where the interest transferred is in the whole of the land, to the whole of the deduction for any subsequent year of income, and where the interest transferred is in part only of the land, to so much of the deduction as the Commissioner may determine to be just and reasonable.
(b) in any other case, to the owner of the interest in immediate reversion on the leasehold interest.
Definitions for Part IV.
23.
23.
"farm works" means farmhouses, labour quarters, any other immovable buildings necessary for the proper operation of the farm, fences, dips, drains, water and electricity supply works other than machinery, windbreaks, and other works necessary for the proper operation of the farm.
PART V
- INVESTMENT DEDUCTIONS
PART V
- INVESTMENT DEDUCTIONS
Buildings and machinery.
24.
(b) on the purchase and installation of new machinery in a part of a building other than a building or part thereof previously used for the purposes of manufacture, and -
(i) the owner of the new machinery subsequently uses that machinery in that building for the purposes of manufacture; and
(ii) the machinery has not been installed substantially in replacement of machinery previously in use in an existing business carried on by the owner of that new machinery;
(c) on or after the 1st January, 1992 on the construction of a building where the owner or the lessee of that building uses the building for the purposes of manufacture; or
(d) on or after the 1st January, 1992 on the purchase and installation of machinery to be used for the purpose of manufacture;
(dd) on or after 1st January 2005, on the purchase of machinery which is subsequently leased and used for the purpose of manufacture.
(e) on the construction of a hotel building which is certified as an industrial building under paragraph 5(1)(c);
(f) on the construction of a building or purchase and installation of machinery outside the City of Nairobi or the Municipalities of Mombasa or Kisumu whereof the value of the investment is not less than two hundred million shillings;
on the construction of a building or purchase and installation of machinery outside the City of Nairobi or the Municipalities of Mombasa or Kisumu whereof the value of the investment is not less than two hundred million shillings;
Finance Act 2009 Effective 01 January 2010
(g) on the purchase of filming equipment by a local film producer licensed by the Minister responsible for matters relating to communication;
Finance Act, 2017 effective 1st January 2018
(h) on the construction of transportation and storage facilities for petroleum products by the Kenya Pipeline Company Limited;
Finance Act 2009 Effective 01 January 2010 Finance Act 2004 1 Jan 05 Kenya Gazette 3 Jan 05 Finance Act, 2014 Effective 01 January 2015
there shall be deducted, in computing gains or profits of the person incurring that expenditure for the year of income in which they were first used (hereinafter referred to as "the year of first use"),
or both the machinery and, for the purpose of manufacture, the part of the building in which that machinery has been installed referred to in subparagraph (b),
or the building referred to in subparagraph (c),
provided that, prior to its first being used for manufacture after its completion, it has been used for no other purpose,
or the machinery referred to in subparagraph(d), or (dd)
or the building referred to in subparagraph (e),
or the building or machinery referred to in subparagraph (f)
or machinery referred to in paragraph (g),
as the case may be, a deduction referred to as an investment deduction.
1 st January 2005_________100%
1 st January 2006_________100%
1 st January 2007 _________100%
1 st January 2008_________100%
Finance Act 2003 9 Jan 04
1 st January, 1989_______25%
1 st January, 1990_______35%
1 st January, 1995_______60%
1 st July, 2000__________100%
1 st January, 2002_______85%
1 st January, 2003_______70%
1 st January, 2004_______60%
1 st January 2006_________100%
1 st January 2007 _________100%
1 st January 2008_________100%
Finance Act 2009 Effective 01 January 2010 Finance Act, 2015 effective 1st Jan 2016
(c) in the case of an investment referred to in subparagraph (1)(f), be equal to one hundred and fifty percent of the capital expenditure;
in the case of an investment referred to in subparagraph (1)(f), be equal to one hundred and fifty percent of the capital expenditure;
Finance Act 2009 Effective 01 January 2010
(d) in the case of the equipment referred to in subparagraph (1)(g), be equal to one hundred percent of the capital expenditure.
(a) where, under paragraph 24(1)(a) or paragraph 24(1)(c) a building is used partly for the purposes of manufacture and partly for other purposes, the capital expenditure on which the deduction in respect of the building is calculated shall be the capital expenditure attributable to that portion of the building which is used for the purposes of manufacture; but where the capital expenditure so attributable exceeds nine-tenths of the total capital expenditure incurred on the construction of the building the whole building shall be treated as used for purposes of manufacture;
(b) where an existing building is extended by further construction, the extension shall be treated as a separate building;
(c) capital expenditure incurred on the construction of a building does not include capital expenditure on the acquisition of, or of rights in or over, any land;
(d) where capital expenditure is incurred on the construction of a building and before that building is used, it is sold -
(ii) the person who purchases the building shall be deemed to have incurred capital expenditure on the construction thereof equal to the capital expenditure actually incurred on the construction of the building or to the amount paid by him, whichever is the less:
Provided that where the building is sold more than once before it is used, item (ii) shall have effect only in relation to the last sale.
Finance Act 2007 Effective 15 June 07
(e) "building" includes any building structure and where the building is used for purposes of manufacture it includes the civil works and structures deemed to be part of an industrial building under paragraph 5(1A) of this Schedule;
"installation" means affixing to the fabric of a building in a manner necessary for and appropriate to the proper operation of the machinery concerned or otherwise setting up the machinery for use as may be appropriate for the type of machine;
"machinery" means machinery and equipment used directly in the process of manufacture, and includes machinery and equipment used for the following ancillary purposes –
4of 1999, s.40
(i) generation, transformation and distribution of electricity;
(ii) clean-up and disposal of effluents and other waste products;
(iii) reduction of environmental damage;
(iv) water supply or disposal; and
(v) Workshop machinery for the maintenance of the machinery.
Finance Act 2001 1.1.2002 Finance Act 2009 Effective 01 January 2010
"manufacture" means the making (including packaging) of goods or materials from raw or partly manufactured materials or other goods, or the generation of electrical energy for supply to the national grid but does not extend to any activities which are ancillary to manufacture, such as design, storage, transport or administration;
Capital expenditure on buildings and machinery for purposes of manufacture under bond.
24.A
24.A
(a) on or after 1st January, 1988, on the construction of a building and on the purchase and installation therein of new machinery and the owner of that machinery being also the owner of that building uses that machinery for the purposes of manufacture under bond; or
(b) on or after 1st January, 1996, on the purchase and installation of machinery to be used for the purposes of manufacture under bond,
(2) The amount of the investment deduction under subparagraph (1) shall be equal to –
(a) seventy-five per cent of that capital expenditure where that manufacture is carried on within the municipalities of Nairobi or Mombasa; or
(b) twenty-five per cent of that capital expenditure where that manufacture is carried on elsewhere.
9of2000, s.54
(2A) The amount of investment deduction under sub paragraph (2) commencing on or after the 1st January, 1990, shall be equal to -
(a) sixty-five per cent of that capital expenditure where that manufacture is carried on within the municipalities of Nairobi or Mombasa; or
(b) fifteen per cent of that capital expenditure where that manufacture is carried on elsewhere.
1.7.2000
(2B) The amount of investment deduction under subparagraph (2) shall be equal to the percentage of the capital expenditure applicable in accordance with the following table –
Where the year of first use is any year of income or accounting year commencing on or after _______Percentage of the Capital Expenditure
Finance Act 2003 1 January 2003 Finance Act 2003 9 Jan 04
1 st January, 1995_______40%
1 st July, 2000__________NIL
1 st January,2002________ 15%
1 st January, 2003_______30%
1 st January, 2004_______40%*
1 st January 2005________NIL
1 st January 2006 ________NIL
1 st January 2007 ________NIL
1 st January 2008________NIL
(3) The deduction allowable under subparagraph 2, (2A) or (2B) shall be in addition to any deduction under paragraph 24:
(4)
(a) Capital expenditure incurred in the construction of a building does not include expenditure incurred on the acquisition of, or of rights in or over, land;
(b) "Building", "installation", and "new" shall have the meaning ascribed to those words in paragraph 24(3)(e) of this Schedule:
(c) "Manufacture under bond" shall have the meaning ascribed to these words in section 2(1) of the Customs and Excise Act. (Cap. 472 )
Capital expenditure on buildings and machinery for use in an export processing zone.
24B.
24B.
(2) During the twenty year period specified in subparagraph (1), paragraphs 24 and 24A shall not apply to an export processing zone enterprise.
(3) Capital expenditure incurred in the construction of building does not include capital expenditure incurred on the acquisition of, or rights in or over land.
Finance Act, 2017 effective 1st Jan 2018
Capital expenditure on buildings and machinery for use in a Special Economic Zone
24C
24C
Statutory Amendment Law No 11 of 2017
24C
24C
2 -The amount of the investment deduction under subparagraph (1) shall be equal to one hundred and fifty per centum of the capital expenditure.
Finance Act, 2017 effective 1st Jan 2018
24D
Capital expenditure on buildings and machinery for use in a Special Economic Zone outside Nairobi and Mombasa Counties
Capital expenditure on buildings and machinery for use in a Special Economic Zone outside Nairobi and Mombasa Counties
Shipping
25.
25.
Finance Act, 2015 effective 1st Jan 2016
(a)on the purchase of a new and hitherto unused power driven ship of more than 495 tons 125 tons gross; or
Finance Act, 2015 effective 1st Jan 2016
(b)on the purchase, and subsequent refitting for the purposes of that business, of a used power-driven ship of more than 495 tons 125 tons,
Finance Act, 2015 effective 1st Jan 2016
there shall be deducted in computing his gains or profits for the year of income in which the ship is first used in that business a deduction (referred to as a shipping investment deduction) equal to forty per cent one hundred per cent of that capital expenditure, but –
(i) not more than one shipping investment deduction shall be allowed in respect of the same ship,
(ii) (Deleted by 13 of 1975, s. 2.);
(c) where a ship in respect of which a shipping investment deduction has been given, is sold within a period of five years from the end of the year of income in which the deduction was given, the deduction shall be withdrawn and treated as income of the vendor for the year of income in which the sale takes place.
Sale of buildings prior to use.
Where capital expenditure is incurred on the construction of a building to which paragraph 24 (1) (a), (c), (e) or (f) applies and which is sold before it is first used then the provisions of paragraph 4 shall apply.
PART VI
- MISCELLANEOUS PROVISIONS
PART VI
- MISCELLANEOUS PROVISIONS
Apportionment consideration for sale, exchanges, etc. of any property or of lease hold interest
27.
27.
(a) A reference in this Schedule to the sale of property includes a reference to the sale of that property together with any other property, and, where property is sold together with other property, so much of the net proceeds of the sale of the whole property as the Commissioner may determine to be just and reasonable as properly attributable to the first mentioned property shall, for the purposes of this Schedule, be deemed to be the net proceeds of the sale of the first mentioned property, and references to expenditure incurred on the provision or the purchase of property shall be construed accordingly.
(b) For the purposes of this paragraph all the property which is sold in pursuance of one bargain shall be deemed to be sold together, notwithstanding that separate prices are, or purport to be, agreed for separate items of that property or that there are, or purport to be, separate sales of separate items of that property.
(2) Subparagraph (1) shall, with the necessary adaptations, apply in relation to other sale moneys as they apply in relation to the net proceeds of sales.
(3) This Schedule shall have effect as if a reference therein to the sale of property included a reference to the exchange of property and, in the case of a leasehold interest, also included a reference to the surrender thereof for valuable consideration, and provisions of this Schedule referring to sales shall have effect accordingly with the necessary adaptations and, in particular with the adaptations that references to the net proceeds of sale and to the price shall be taken to include references to the consideration for the exchange or surrender and references to capital sums included in the price shall be taken to include references to so much of the consideration as would have been a capital sum if it had taken the form of a money payment.
Interpretation of certain references to expenditure.
28.
28.
(2) A reference in this Schedule to the date on which expenditure is incurred shall be construed as a reference to the date when the sum in question becomes payable.
Subsidies
29.
29.
(2) In considering whether, for the purpose of this Schedule, expenditure has been met or is to be met directly or indirectly by anyone other than the person incurring the expenditure, there shall be left out of account -
(a) insurance moneys or other compensation moneys payable in respect of an asset which has been demolished, destroyed or put out of use; and
(b) expenditure met, or to be met, by a person, other than a government or a local authority, being expenditure in respect of which, apart from this item, no deduction could be made under subparagraph (3).
(3) Where a person, for the purposes of a business carried on or to be carried on by him or by a tenant of land in which he has an interest, contributes a capital sum (hereinafter referred to as a contribution) to expenditure on the provision of an asset being expenditure which, apart from subparagraph (1), would have been regarded as wholly incurred by another person and in respect of which, apart from that subparagraph, a deduction would have been made under this Schedule, then, subject to this paragraph, such deductions, if any, shall be made to the contributor as would have been made to him if his contribution had been expenditure on the provision, for the purpose of that business, of a similar asset.
(4) Subject to this Schedule, the amount of the deductions and the manner in which they are to be made shall be determined on the following basis-
(a) the asset shall be deemed to continue at all material times to be in use for the purposes of the business;
(b) where the asset is machinery and, when the contribution was made, the business was carried on or was to be carried on by a tenant of land in which the contributor has an interest, the contributor shall be deemed to have let the machinery to the tenant on terms that the burden of the wear and tear thereof falls directly on the contributor.
(5) Where, when the contribution was made, the business for the purposes of which it was made was carried on or was to be carried on by the contributor, then, on a transfer of the business or apart thereof –
(b) where the transfer is of part only of the business, item (a) shall have effect with respect to so much of the deduction as the Commissioner may determine is properly referable to the part of the business transferred.
(6) Where, when the contribution was made, the business was carried on or was to be carried on by a tenant of land in which the contributor had an interest, the deduction for a year of income shall be made to the person who is entitled to the interest of the contributor in the land.
Prevention of double allowances.
30.
30.
Increase of deductions.
31.
31.
Finance Act 2009 Effective 01 January 2010 Finance Act 2010 Effective 01 Jan 2011
31A
Provided that the period of concession shall be deemed to commence-
(a) in the case of machinery, in the year in which the machinery is first put into use;
(b) in the case of a road, bridge or similar infrastructure, in the year in which it is first put into use after completion.
Finance Act 2009 Effective 01 January 2010
31B
Other provisions. as to interpretation
32.
32.
"control", in relation to a body corporate, means the power of a person to secure, by means of the holding of shares or the possession of voting power in or in relation to that or another body corporate, or by virtue of powers conferred by the articles of association or other document regulating that or another body corporate, that the affairs of the first mentioned body corporate are conducted in accordance with the wishes of that person; and in relation to a partnership, means the right to a share of more than one-half of the assets or of more than one-half of the income of the partnership;
Finance Act 2008 Effective 13 June 08
Provided that in the case of a body corporate, unless otherwise expressly provided for by the articles of association or other documents regulating it, “control” shall mean the holding of shares or voting power of twenty-five percent or more.
"income" includes an amount on which a charge to tax is authorized to be made under this Act;
"lease" includes an agreement for a lease where the term to be covered by the lease has begun and a tenancy but does not include a mortgage;
"machinery" includes ships and plant used in carrying on a business;
"sale moneys" means, in relation to -
(a) a sale of property, the net proceeds of the sale;
(b) the coming to an end of an interest in property, compensation payable in respect of that property;
(c) the demolition or destruction of property, the net amount received for the remains of the property, together with insurance or salvage moneys received in respect of the demolition or destruction and other compensation of any description received in respect thereof, in so far as that compensation consists of capital sums.
(2) A reference in this Schedule to any building, machinery, works, asset or farmhouse shall, except where the reference is to the whole of a building, be construed as including a reference to a part thereof.
(3) A reference in this Schedule to the time of a sale shall be construed as a reference to the time of completion or the time when possession is given, whichever is the earlier.
(4) For the purposes of this Schedule the price which property would have fetched if sold in the open market shall be determined by the Commissioner.
(5) Where the income of an accounting period ending on some day other than the last day of a year of income is taken into account for the purpose of ascertaining total income for a year of income, a reference in this Schedule to a year of income shall be construed as a reference to that accounting period; but where a deduction under this Schedule is related to a year of income and the income of an accounting period is so taken into account then, if that accounting period is more or less than twelve months, the amount of the deduction shall be proportionately increased or decreased, as the case may be.
Finance Act 2008 Effective 13 June 08
33.
“Hotel” means a hotel which has been classified as such by the Minister for the time being responsible for matters relating to tourism.
INVESTMENT ALLOWANCE
(Sections 4, 5 and 15)
1. Deduction of investment allowance.
Where a person incurs capital expenditure in respect of an item listed in the first column of the table, an investment allowance may be deducted in computing the gains or profits of that person at the corresponding rate specified in the second column, for each year of income—
Capital expenditure incurred on: | Rate of Investment Allowance | |||||
---|---|---|---|---|---|---|
(a) Buildings — | . | |||||
(i)Hotel building | 50% in the first year of use | |||||
(ii)Building used for manufacture | 50% in the first year of use | |||||
(iii)Hospital buildings | 50% in the first year of use | |||||
(iv)Petroleum or gas storage facilities | 50% in the first year of use | |||||
(v)Residual value to item (a)(i) to (a)(iv) | 25% per year,
| |||||
(vi)Educational buildings including student hostels | 10% per year, | |||||
(vii)Commercial building | 10% per year, | |||||
(b) Machinery — | 10% per year, in equal instalments**
| |||||
(i)Machinery used for manufacture | 50% in the first year of use | |||||
(ii)Hospital equipment | 50% in the first year of use | |||||
(iii)Ships or aircrafts | 50% in the first year of use | |||||
(iv)Residual value items (b) (i) to (b)(iii) | 25% per year, | |||||
(v)Motor vehicles and heavy earth moving equipment | 25% per year, | |||||
(vi)Computer and peripheral computer hardware software, calculators, copiers and duplicating machines | 25% per year, | |||||
(vii)Furniture and fittings | 10% per year, | |||||
(viii) Tele communications equipment | 10% per year, | |||||
(ix) Filming equipment by a local film producer licensed by the Cabinet Secretary responsible for filming | 25% per year, | |||||
(x)Machinery used to undertake operations under a prospecting right | 50% in the first year of use and 25% per year, | |||||
(xi)Machinery used to undertake exploration operations |
50% in the first year of use and 25 per year, | |||||
(xii) Other machinery | 10% per year, | |||||
-- | ||||||
(c) Purchase or an acquisition of an indefeasible right to use fibre optic cable by a telecommunication operator |
10% per year, | |||||
-- | ||||||
(d) Farmworks | 50% in the first year of use and 25% per year, |
Provided that-
- (a) in the case of change of user of a building, the deduction shall be restricted to the residual value or unclaimed amount at the applicable rate;
- (b) in respect of a hotel, educational or hospital building, the building shall be licensed by the competent authority; and
- (c) "building used for manufacture" includes any structure or civil works deemed to be part of a building where the structure or civil works relates or contributes to the use of the building;
- (d) "commercial building" includes—
- (i) a building used as an office, shop, showroom, godown, storehouse, or warehouse used for storage of raw materials for manufacture of finished or semi-finished goods; or
- (ii) civil works relating to water or electric power undertaking, but does not include an undertaking not carried on by way of trade;
- (e) "machinery used for manufacture" means machinery used directly in the process of manufacture, and includes machinery used for the following ancillary purposes —
- (i) generation, transformation and distribution of electricity;
- (ii) clean-up and disposal of effluents and other waste products;
- (iii) reduction of environmental damage;
- (iv) water supply or disposal;
- (v) maintenance of the machinery; or
- (vi) scientific research and development;
- (f) "manufacture" means the refining or*** making, including packaging, of goods from raw or semi-finished goods, or the generation of electrical energy
for supply to the national grid**, or the transformation and distribution of electricitythrough the national grid*, but does not include design, storage, transport, administration or any other ancillary activity;(Finance Act 2021- wef-01Jan2022*) (Finance Act 2022-wef-01-July-2022**)(Finance Act 2023 wef 1st-January-2024 s25***) - (g)* civil works include –
- (i) roads and parking areas;
- (ii) railway lines and related structures;
- (iii) water, industrial effluent and sewerage works;
- (iv) communications and electrical posts and pylons and other electrical supply works; and
- (v) security walls and fencing. (Finance Act 2021- wef-01Jan2022*)
- (vi) earthworks for telecommunication equipment and construction works undertaken in connection with the installation and maintenance of telecommunication equipment and related structures. (Finance Act 2023 wef 1st-January-2024 s25)
- (h)* “Farm works” means farmhouses, labour quarter, any other immovable building necessary for the proper operation of the farm, fences, dips, drains, water and electricity supply works and other works necessary for the proper operation of the farm; (Finance Act 2021- wef-01Jan2022*)
- (i) “dock” includes a container terminal berth, harbour, wharf, pier, jetty, storage yard, or other works in or at which vessels load or unload merchandise but does not include a pier or jetty used for recreation; (Finance Act 2023 wef 1st-January-2024 s25)
- (j) “industrial building” includes a building in use for the purpose of transport, bridge, tunnel, inland navigation water and electricity or hydraulic power undertaking; (Finance Act 2023 wef 1st-January-2024 s25)
- (k) “machinery used for agriculture” means machinery used directly in agricultural activities including tilling, planting, irrigation, weeding and harvesting; (Finance Act 2023 wef 1st-January-2024 s25)
- (l) “telecommunications equipment” includes civil works deemed as part of the telecommunication equipment or civil works that contribute to the use of the telecommunication equipment. (Finance Act 2023 wef 1st-January-2024 s25)
(1A)* Notwithstanding paragraph 1, the investment deduction shall be one hundred per cent where—
- (a) the cumulative investment value in the preceding three years outside Nairobi City County and Mombasa County is at least
two**one billion shillings: - Provided that where the cumulative value of investment for the preceding three years of income was
two**one billion shillings on or before the 25th April, 2020, and the applicable rate of investment deduction was one hundred and fifty per cent, that rate shall continue to apply for the investment made on or before the 25th April, 2020; - or the investment deduction shall be one hundred and fifty per cent where the cumulative investment value for the preceding four years from the date that this provision comes into force or the cumulative investment for the succeeding three years outside Nairobi City County or Mombasa County is at least
two**one billion shillings” (Finance Act 2022-wef-01-July-2022) (TLAA 2024 wef 27th December, 2024 S15**) - (b) the investment value outside Nairobi City County and Mombasa County in that year of income is at least two hundred and fifty million shillings; or
- (c) the person has incurred investment in a special economic zone. (Finance Act 2021- wef-01Jan2022*)
(1B) Paragraph (1A) shall apply to items listed under paragraphs 1(1)(a)(i) and (ii), and (1)(b)(i). (Finance Act 2023 wef 1st-January-2024 s25)
2. Calculation of written down or residual value
The written down or residual value of each item referred to in paragraph 1 shall be calculated separately, and shall be the balance of capital expenditure taking into account the sale of the item after deducting investment allowance.
3. Treatment of excess or deficit of realized amounts.
Where the amount realized from the sale of an item referred to in paragraph 1 exceeds the written down or residual value, the excess shall be treated as a trading receipt or, conversely, a trading loss for the year of income.
4. Balancing charge or deduction on cessation of business.
- (1) Where an investment allowance has been deducted under paragraph 1 in computing the gains or profits of a person and that person ceases to carry on business for the purposes of which the item was used and the item ceases to be owned by him, a balancing charge or balancing deduction shall be made or allowed for the year of income in which he ceased to carry on business.
- (2) Where the person referred to in subparagraph (1) is a partnership, the person shall be deemed to have ceased to carry on business only when all the partners cease to carry on that business.
- (3) Where the items are sold by a liquidator of a company, the balancing charge or balancing deduction shall be made or allowed in the year of income in which the winding up commenced.
- (4) Where on cessation of a business, a balancing charge or balancing deduction is to be made or allowed under this paragraph and —
- (a) the consideration received exceeds the residual value at the time of cessation, the balancing charge shall be the excess amount or, where the residual value is nil, the consideration received; or
- (b) a consideration is not received by the person who owns the items, or the residual value at the time of the cessation exceeds the consideration received, the balancing deduction shall be the residual value at the time of cessation, or the excess thereof over the consideration received.
5.Determination of market value of items used in a business.
Where an item is brought into use for a business without being purchased or ceases permanently to be used without being sold, it shall be deemed to have been purchased or sold, and the cost or amount realized shall be deemed to be the market value.
6. Restriction On capital expenditure on motor vehicles.
- (1) Where capital expenditure exceeding three million shillings is incurred on a motor vehicle, other than a commercial vehicle, that capital expenditure shall be restricted to three million shillings.
- (2) Where the motor vehicle referred to in subparagraph (1) is sold, the sale price shall be deemed to be the proportion of the proceeds of sale, having regard to the original purchase price and three million shillings.
7. Limitation on capital expenditure on buildings.
Capital expenditure incurred on the construction of a building does not include capital expenditure on the acquisition of, or of rights in or over, land.
8. Ascertainment of capital expenditure on buildings.
- (1) Where a building is used partly for purposes other than the purposes specified in paragraph 1, the capital expenditure on which the deduction in respect of the building is calculated shall be the expenditure attributable to that portion of the building which is used for those purposes, but where the expenditure attributable exceeds ninety per cent of the total expenditure incurred on the construction of the building the whole building shall be treated as used for the specified purposes.
- (2) Where an existing building is extended by further construction, the extension shall be treated as a separate building.
- (3) Where capital expenditure is incurred on the construction of a building and before that building is used it is sold, the seller shall not be allowed a deduction.
- (4) Where a person purchases the building referred to in subparagraph (3), that person shall be deemed to have incurred capital expenditure on its construction equal to the capital expenditure actually incurred on its construction or to the amount paid by him, whichever is lesser.
- (5) Where the building referred to in subparagraph (3) is sold more than once before it is used, subparagraph (4) shall apply but only in relation to the last sale.
- (6) Where a building referred to in subparagraph (3) is sold by a person carrying on a business of construction for sale, the qualifying capital expenditure shall be the price paid on the sale.
9.Expenditure incurred for a person.
Any expenditure incurred on behalf of a person by another person, shall not qualify for deduction under this Schedule.
NB:
Business-Laws-Amendment-Act-2020-wef-18th March, 2020 24E
(1) Where capital expenditure of at least five billion shillings is incurred on the construction of bulk storage and handling facilities for supporting the Standard Gauge Railway operations of a minimum storage of one hundred thousand metric tonnes of supplies, there shall be deducted, in computing the gains or profits of the person incurring the expenditure for the year of income in which the bulk storage facilities were first commenced or used a deduction referred to as an investment deduction.
(2) The amount of the investment deduction under sub-paragraph (1) shall be equal to one hundred and fifty per cent of the capital expenditure.