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SECOND SCHEDULE

All Repealed by (TaxLAA-No1-2020 wef-25April2020)  for Investment Allowance

PART I -  
DEDUCTIONS IN RESPECT OF CAPITAL EXPENDITURE ON CERTAIN BUILDINGS

1.
 (1) Subject to this schedule, where a person incurs capital expenditure on the construction of an industrial building to be used in a business carried on by him or his lessee, a deduction equal - 
    (a) in a case where the amount of the deduction has not been increased under this Schedule and which is not a case referred to in item (c), to one-fortieth; and 
    (b) in a case where that amount has been so increased, to that fraction as so increased; and 
    (c) in a case referred to in paragraph 5(1)(c), to one twenty-fifth,
       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 - 
  (i) where the building was so used for part only of that year of income, the deduction shall be proportionately reduced; 
  (ii) where the building is sold and continues to be an industrial building used by the purchaser or his lessee, the deduction shall thereafter be made in computing the profits or gains of that person for any year of income in which the building is so used; 
  (iii) where any deductions in respect of that capital expenditure are deductible in accordance with paragraph 24, 24A or 24B the deductions under this paragraph shall be made by reference to that capital expenditure reduced by the amount of those deductions; 
  (iv) where in any year of income an amount has in accordance with paragraph 24A(3) been treated as a trading receipt, the deductions under this paragraph shall be made by reference to that capital expenditure reduced by any deduction made in accordance with paragraph 24 and that expenditure shall be deemed to have been incurred in that year of income.
(1A) Where a building is an industrial building within the meaning of subparagraph (1), the following civil works or structures on the premises of the building shall be deemed to be part of the building where they relate or contribute to the use of the building - 
   (i) roads and parking areas; 
   (ii) railway lines and related structures, 
   (iii) water, industrial effluent and sewage works; 
   (iv) communications and electrical posts and pylons and other electricity supply works; and 
   (v) security walls and fencing.
(2) Notwithstanding anything in this Part, in no case shall the amount of deduction for a year of income exceed that which, apart from the making of that deduction, would be the residue of expenditure at the end of that year of income. 

(3) For the purposes of this paragraph, construction of an industrial building includes the expansion or substantial renovation or rehabilitation of an industrial building, but does not include routine maintenance or repair. 

Increase of deductions. 

2. 
Notwithstanding paragraph 1 (1)(a), where the Commissioner is satisfied that, having regard to the type of construction or to the use to which an industrial building is put, its life is likely to be substantially less than forty years, he may, upon the application of the person entitled to claim a deduction under this Part, increase the amount of the deduction to such am amount as he considers just and reasonable, and all the provisions of this Part shall apply accordingly. 

Ascertainment of residue of expenditure. 

3. 
In this Part, the residue of expenditure at any time shall be – 

(a) in relation to a building which had not been used before the year of income 1974, the capital expenditure incurred on the construction of the building as computed under paragraph 1 less the total of - 
    (i) any deductions made under this Part; and 
   (ii) in a case to which proviso (iv) of paragraph 1 applies, the amount of deductions under this part which were deducted in computing the amount of the trading receipt under paragraph 24A(3); and
   (iii) any deductions which would have been made had the building been an industrial building when first used; 

(b) in relation to a building which at the end of the year of income 1973 was an industrial building for the purposes of the Management Act, the residue of expenditure as ascertained under paragraph 3 of the Second Schedule to that Act less any deductions made under this Part; 

(c) in relation to a building which had been used before the end of the year of income 1973 but was not an industrial building for the purposes of the Management Act at the end of that year of income, the amount which would have been the residue of expenditure as ascertained under item (b) if it had always been an industrial building.

Sale of building prior to use.

4.
(1) Where capital expenditure is incurred on the construction of a building and before that building is used, it is sold - 
    (a) expenditure actually incurred on the construction thereof shall be left out of account for the purposes of this Schedule; but 
      (b) 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; 
  but where the building is sold more than once before it is used, item (b) shall have effect only in relation to the last sale. 
(2) Where the expenditure incurred on the construction of a building was incurred by a person carrying on a business which consists, as to the whole or any part thereof, in the construction of buildings with a view to their sale before the building is used he sells it in the course of that business or part thereof, subparagraph (1)(b) shall have effect as if the reference to the capital expenditure actually incurred on the construction of the building were a reference to the price paid on the sale.
5.
(1) Subject to this paragraph, in this Schedule "industrial building" means – 
        (a) a building in use – 
(i) for the purposes of a business carried on in a mill, factory or other similar premises; or 
(ii) for the purposes of a transport, dock, bridge, tunnel, inland navigation, water, electricity or hydraulic power undertaking; or 
(iii) for the purposes of a business which consists in the manufacture of goods or materials or the subjection of goods or materials to any process; or 
(iv) for the purposes of a business which consists in the storage of goods or materials - 
  (A) which are to be used in the manufacture or other goods or materials; or 
  (B) which are to be subjected, in the course of a business, to any process; or
  (C) which, having been manufactured or produced or subjected, in the course of a business, to any process, have not yet been delivered to any purchaser; or 
  (D) on their arrival by sea or air into any part of Kenya; or 
(v) for the purpose of a business consisting of ploughing or cultivating agricultural land as defined in paragraph 22 (other than land in the occupation of the person carrying on the business) or doing any other operation on the land, or threshing the crops of another person; or 
(vi) for the purposes of a business which may be declared by the Minister by notice in the Gazette as being within the provisions of this paragraph either generally, or in relation to a particular class, or in particular instance within that class; 
       (b) a prescribed dwelling-house, that is to say a dwelling house constructed for and occupied by employees of a business carried on by the person owning the dwelling-house and which conforms with prescribed conditions; 
       (c) a building which is in use as a hotel or part of a hotel and which the Commissioner has certified to be an industrial building where such a building in use as a hotel includes any building directly related to the operations of the hotel contained within the grounds of the hotel complex, including staff quarters, kitchens, and entertainment and sporting facilities;
      (d) a building in use for the welfare of workers employed in any business or undertaking referred to in item (a).
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
(2)   Item (a) of subparagraph (1) shall apply in relation to a part of a business or undertaking as it applies in relation to a business or undertaking; but where part only of a business or undertaking complies with the conditions set out in that item, a building shall not, by virtue of this subparagraph, be an industrial building unless it is in use for the purpose of that part of the business or undertaking.
(3) Notwithstanding subparagraphs (1) and (2) but subject to subparagraph (4), the expression "industrial building" does not include a building in use as, or as part of, a retail shop, showroom, office or dwellinghouse, or for any purpose ancillary to the purposes of a retail shop, showroom or office; but this subparagraph shall not apply to a prescribed dwelling-house, or to part of, a building which is a dwelling- house constructed for the occupation by persons employed in a business or undertaking referred to in subparagraph (1) or to a building constructed for the welfare of those persons, if that building will cease to belong to the person carrying on the business or undertaking on the coming to an end of a concession under which the business or undertaking is carried on, or if the building would have little or no value to that person if he ceased to carry on the business or undertaking on the termination of, or had little or no value to that person where the business or undertaking ceased to be carried on during, the year of income in respect of which a claim for a deduction has been made under this Part. 
(4) Where part of a building is, and part thereof is not, an industrial Building and the capital expenditure which has been incurred on the construction of the second-mentioned part is not more than one-tenth of the total capital expenditure which has been incurred on the construction of the building, the whole building shall be treated as an industrial building. 
(5) In this paragraph - 
"bridge" means a bridge, the use of which is subject to a charge or toll; and “ bridge undertaking" shall be construed accordingly; 
"crop" includes any form of vegetable produce;
"dock" includes a harbour, wharf, pier or jetty or other works in or at which vessels can ship or unship merchandise or passengers, not being a pier or jetty primarily used for recreation; and "dock undertaking" shall be construed accordingly. 
"electricity undertaking" means an undertaking for the generation, transformation, conversion, transmission or distribution of electrical energy; 
"hydraulic power undertaking" means an undertaking for the supply of hydraulic power; 
"retail shop" includes premises of a similar character where a retail business (including repair work) is carried on; 
"undertaking" does not include an undertaking not carried on by way of trade; 
"water undertaking" means an undertaking for the supply of water for public consumption.

Interpretation

6.
(1) A reference in this Part to the incurring of capital expenditure on the construction of building does not include capital expenditure on the provision of machinery or on an asset which has been treated for a year of income as machinery. 

(2) References in this Part to capital expenditure incurred on the construction of a building do not include capital expenditure on the acquisition of, or of rights in or over, land. 
Expenditure in respect of commercial building Finance Act 2012 01 January 2013 
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 

7.

(1) Subject to this Part, where, during a year of income, machinery owned by a person is used by him for the purposes of his business, there shall be made in computing his gains or profits for that year of income a deduction (in this Part referred to as a "wear and tear deduction"). 

(2) The amount of the wear and tear deduction for a year of income shall be the appropriate percentage of the written down value at the end of that year, before making the deduction, of the machinery classified as follows - 
    (a) tractors, combine harvesters, heavy earth-moving equipment and such other heavy self-propelling machines of a similar nature as in his discretion the Commissioner, having regard to the likely usage and depreciation in any particular case, may agree; 
    (b) other self-propelling vehicles, including aircraft; 
    (c) all other machinery, including ships; 
and the appropriate percentage shall be 37.5 per cent for class (a), 25 per cent for class (b) and 12.5 per cent for class (c). 

(3) For machinery purchased on or after 1st January, 1992, the amount of wear and tear deduction for a year of income shall be the appropriate percentage of the written down value at the end of that year, before making that deduction, of the machinery classified as follows - 
    (a) tractors, combine harvesters, heavy earth-moving equipment and such other heavy self-propelling machines of a similar nature as in his discretion the Commissioner, having regard to the likely usage and depreciation in any particular case, may agree; 
    (b) computers and peripheral computer hardware, calculators, copiers and duplicating machines; 
    (c) other self-propelling vehicles, including aircraft;
    Finance Act, 2014 Effective 01 January 2015 
        (cc) Petroleum pipeline;
    (d) all other machinery, including ships; 
Finance Act, 2014 Effective 01 January 2015 Finance Act, 2015 Effective 1st Jan 2016 
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.

(1) The written down value of each class of machinery referred to in paragraph 7(2) or 7(3) shall be calculated separately as at any time and shall be the amount still unallowed of capital expenditure on machinery of the class as construed in paragraph 9 of the Second Schedule to the Management Act, and as specified in paragraph 7 with the addition of the costs of capital expenditure on machinery of that class purchased and the deduction of the amount realized on the sale of machinery of that class sold in the year of income 1974, or a succeeding year of income, less deductions made under this Part; and where the amount realized for machinery of a class sold in a year of income exceeds that which, but for the deduction of that amount would be written down value of machinery of that class at the end of that year of income, the excess shall not be deducted but shall be treated as a trading receipt or, conversely, as a trading loss: 

Provided that - 
(i) the cost of capital expenditure of any class of machinery in respect of which a deduction is allowable in accordance with paragraph 24, 24A or 24B shall be deemed to be that cost reduced by the amount of those deductions; 

(ii) where in any year of income an amount has, in accordance with paragraph 24A(3), been treated as a trading receipt, so much thereof as is referable to capital expenditure incurred on machinery of that class shall be deemed to be capital expenditure incurred on the purchase of machinery in that class in the year of income next succeeding that year of income; 

(2) Subject to this Part, where machinery is brought into use for the purposes of a trade without being purchased or ceases permanently to be so used without being sold it shall be deemed to have been purchased or sold as the case may be and the cost or amount realized shall be deemed to be the price which it would have fetched if sold in the open market. 

Application to lessors.
 9. 

Where machinery is let upon terms that the burden of the wear and tear thereof falls directly upon the lessor, this Part shall apply in relation to him as if the machinery were, during the period of the letting, in use for the purposes of a business carried on by him.

Expenditure on buildings in connection with the installation of machinery.
10. 

Where a person carrying on a business incurs capital expenditure on alterations to an existing building incidental to the installation of machinery for the purposes of the business, this Schedule shall have effect as if that expenditure were capital expenditure on the provision of that machinery and as if the works representing that expenditure formed part of that machinery.

Balancing deductions and balancing charges. 

11.
(1)Where wear and tear deductions or investment deductions have been made in computing the gains or profits of a person under paragraphs 7,24, 24A or 24B and that person ceases to carry on the business for the purposes of which the machinery was used and the machinery ceases to be owned by him, there shall be made in computing his gains or profits for the year of income in which the cessation occurs, a deduction or charge (in this Part referred to as a "balancing deduction" or a "balancing charge"); but- 
(a) for the purposes of this paragraph a partnership shall be deemed not to have ceased to carry on a business unless all the partners who carried it on cease to carry it on; and 
(b) where the machinery is sold by the liquidator of a company which is in the course of being wound up, the balancing deduction or balancing charge shall be made in computing the gains or profits of the company for the year of income in which the winding up commenced; and 
(c) where, in the case of a balancing deduction, the total income for a year of income before taking account of the deduction is less than the amount of the deduction, the excess may be carried back and allowed in calculating the total income of the next preceding year of income, and so on, for as long as is necessary for the deduction to be absorbed by the total income of preceding years, not exceeding in all six in number. 

(2) Subject to this Part, where on cessation of a trade a balancing deduction or a balancing charge is to be made under this paragraph and - 
(a) no sale moneys are received by the person owning the machinery, or the written down value at the time of the cessation exceeds those moneys, the balancing deduction shall be the written down value at the time of cessation, or the excess thereof over those moneys, as the case may be; 
(b) the sale moneys exceed the written down value, if any, at the time of cessation, the balancing charge shall be the amount of the excess or, where the written down value is nil, the amount of those moneys, as the case may be.

Effect in certain successions, transfers, etc.
12. 

Where a person succeeds to a business which until that time was carried on by another person, and machinery which, immediately before the succession was in use for the purposes of the business without being sold is, immediately after the succession, in use for the purposes of the business, that machinery shall, for the purposes of this Schedule, be treated as if it had been sold at the date of the succession to the person or persons carrying on the business immediately thereafter and as if the net proceeds of the sale had been the written down value of the machinery. 

Special provisions as to certain sales.
13.

(1) This paragraph shall have effect in relation to sales of machinery where either - 
(a) the buyer is a body of persons over whom the seller has control, or the seller is a body of persons over whom the buyer has control, or both the seller and the buyer are bodies of persons and some other person has control over both of them; or 
(b) it appears with respect to the sale or with respect to transactions of which the sale is one, that the sole or main benefit which, apart from this paragraph, might have been expected to accrue to the parties or any of them was the obtaining of a deduction under this Schedule. 

(2) Where the machinery is sold at a price other than that which it would have fetched if sold in the open market, then, subject to this paragraph, the like consequences shall ensue for the purposes of this Schedule to all persons concerned as would have ensued if the machinery had been sold for the price which it would have fetched if sold in the open market. 

(3) Where the sale is one to which subparagraph (1)(a) applies and subparagraph (1)(b) does not apply, and is a sale which would give rise to a balancing charge, and the parties to the sale by notice in writing to the Commissioner so elect, then subparagraph (2) shall not have effect but the same consequences shall ensue to the buyer and seller as would have ensued if the price for which the machinery was sold had been the written down value; but no election shall be made in any case where either the buyer or the seller is at the time of the sale a non-resident person.

Private use. 
14. 

Where machinery owned by a person is, during a year of income, used by him for the purposes of a business carried on by him and also used by him for other purposes, then in determining the amount of a wear and tear deduction or a balancing deduction or balancing charge or an amount treated as a trading receipt or the written down value of that machinery for a year of income, regard shall be had to all the relevant circumstances of the case and in particular to the extent of the use for those other purposes and the Commissioner shall make such adjustments as he may determine to be just and reasonable. 

Expenditure on private vehicles. 
15.

(1) For the purposes of this Schedule, where capital expenditure in excess of thirty thousand shillings was incurred on or after 1st January, 1961, in respect of a road vehicle other than a commercial vehicle or a vehicle whose purchaser is a person whose main business is the hire or sale of vehicles, and such vehicles are used exclusively for hire or as stock- in-trade, that capital expenditure shall be deemed to be thirty thousand shillings; where the road vehicle is sold the sale price shall be deemed to be such proportion of the proceeds of sale as the Commissioner may determine to be just and reasonable, having regard to the original purchase price and the proportion thereof deemed under this paragraph to be capital expenditure. 

(2) Where capital expenditure of a kind referred to in subparagraph (1) was incurred on or after 1st January, 1981, that subparagraph shall be read as though the expression "seventy five thousand shillings" were substituted for "thirty thousand shillings" wherever the latter expression occurs. 

(3) Where capital expenditure of a kind referred to in subparagraph (1) is incurred on or after the 1st January, 1990, that subparagraph shall be read as though the expression "one hundred thousand shillings" were substituted for "thirty thousand shillings" wherever the latter expression occurs.

(4) Where capital expenditure of a kind referred to in subparagraph (1) is incurred on or after the 1st January, 1997, that subparagraph shall be read as though the expression "five hundred thousand shillings" were substituted for "thirty thousand shillings" wherever the latter expression occurs.

(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 

Finance Act, 2014 Effective 01 January 2015 

16.

(1) In this Part, except where the context otherwise requires - 
"expenditure" means capital expenditure incurred in Kenya by a person carrying on a mining operation -
(a) in searching for or in discovering and testing deposits of minerals, or in winning access to those deposits, whether or not the search is, or those deposits are, in an area contiguous to a mine in relation to which that person carries on mining operations; 
(b) in the acquisition of, or of rights in or over, deposits other than the acquisition from a person who has carried on mining in relation to those deposits; 
(c) in the provision of machinery which would have little or no value to that person if the mine ceased to be worked on the termination of the year of income in respect of which a claim for a deduction has been made under this Part, and a premium, or consideration in the nature of a premium, paid for the use of that machinery; 
(d) on the construction of a building or works which would have little or no value if the mine ceased to be worked on the termination of the year of income n respect of which a claim for a deduction has been made under this Part; 
(e) on development, general administration and management prior to the commencement of production or during a period of nonproduction; 
but the expression "expenditure" shall not include- (i) expenditure on the acquisition of the site of those deposits, or of the site of those buildings or works, or of rights in or over the site; 
(ii) expenditure on works constructed wholly or mainly for subjecting the raw produce of those deposits to a process except a process designed for preparing the raw product for use as such; 

"mineral" does not include common clay, murram, sand, limestone, sandstone, brine, diatomite, gypsum, anhydride, sulphur, dolomite, kaolin, bauxite, sodium or potassium compounds, or any other mineral substance which for the time being is declared not to be a mineral under section 2 of the Mining Act, unless it has been obtained by underground mining operation and does not include a specified mineral; 
"mining" includes every method or process by which a mineral is won. 

(2) Reference in this Part to assets representing expenditure includes, in relation to expenditure on searching for, discovering and testing deposits, results obtained from any search, exploration or inquiry upon which the expenditure was incurred.

Deductions. 
17.

(1) Subject to this Schedule, where a person carrying on a business of mining incurs expenditure in a year of income there shall be made, in computing his gains or profits for that year of income, a deduction equal to twofifths of that expenditure and in each of the following six years of income a deduction equal to one-tenth of that expenditure. 

(2) Notwithstanding anything contained in subparagraph (1), where the Commissioner is satisfied that, having regard to the estimated ore reserves and to any other relevant information, the mine is likely to be worked before the expiration of six years from the end of the year of income in which the expenditure was incurred, he may, upon the application of the person who incurred the expenditure, increase the amount of the deductions for a year to such amount as he may consider just and reasonable. 

(3) Where the amount of a deduction under this Part has been in any manner varied for a year, then deductions for subsequent years of income shall be so adjusted that the sum of deduction for all years of income shall not exceed the expenditure.

Apportionment of deductions.
18. 

Where a person (the "transferor") is entitled to a deduction under paragraph 17 in respect of expenditure, and his interest in the asset represented by that expenditure, or in part of the asset, is transferred by operation of law or otherwise to some other person (the "transferee") - 
(a) the amount of the deduction, for the year of income in which the transfer takes place, shall be apportioned in such manner as the Commissioner may determine to be just and reasonable between the transferee and the transferor, and 
(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. 

Where separate and distinct mining operations are carried on by the same person in mines that are not contiguous, the mines shall be treated for the purposes of this Part as if separate mining operations were carried on in relation thereto.

Expenditure incurred by persons not engaged in business of mining. 
20.

(1) Expenditure incurred for the purpose of a business of mining by a person about to carry it on shall be treated for the purposes of this Part as if it had been incurred by that person on the first day on which he does carry it on.

(2) Where a person incurs expenditure to which this Part applies on searching for or on discovering and testing deposits of minerals, or winning access to those deposits and, without having carried on a business of mining, sells assets representing that expenditure in relation to those deposits, then if the purchaser carries on a business of mining, the purchaser shall, for the purposes of that business be deemed to have incurred expenditure to which this Part applies equal to the price paid by him for those assets.

 Sum received by vendor treated as trading receipts. 
21. 

Where, under subparagraph (2) of paragraph 20, the purchaser of assets representing expenditure is deemed to have incurred expenditure to which this Part applies equal to the price paid by him for those assets, then the sum received by the vendor as the price for those assets, after deducting therefrom expenditure incurred by him in selling those assets and expenditure incurred by him in Kenya on searching for, discovering, testing and winning access to mineral deposits, so far as that expenditure has not been otherwise deducted in ascertaining his total income for a year of income, shall be treated as a trading receipt for the year of income in which the sale took place; but if the vendor so requests in writing the Commissioner may divide the amount of that sum into so many portions, not exceeding six, as he may think fit, and one portion shall be taken into account in ascertaining the total income of the vendor for the year of income in which the sale took place and for each of the previous years of income corresponding to the number of portions. 

Deductions in respect of capital expenditure on farm works. 

PART IV

- DEDUCTION IN RESPECT OF CAPITAL EXPENDITURE ON AGRICULTURAL LAND 
22.

(1) Subject to this Schedule, where in a year of income 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 four following years of income, a deduction equal to one-fifth of that expenditure. 
Finance Act 2006 Effective 1st January 07 Provided that,
(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.
(2) No capital expenditure shall be taken into account for the purposes of this paragraph unless it is incurred for the purposes of husbandry on the agricultural land in question. 

(3) Where capital expenditure -
(a) is on a farm-house, one-third only of the expenditure shall be taken into account or, if the accommodation and amenities of the farmhouse are out of due relation to the nature and extent of the farm, such lesser proportion thereof as the Commissioner may determine to be just and reasonable;
(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. 
(4) Where a person (the "transferor") would, if he continued to be the owner or tenant, as the case may be, of agricultural land, be entitled to a deduction under this paragraph in respect of capital expenditure and the whole of his interest in the land in question, or in part of that land, is transferred, whether by operation of law or otherwise, to some other person, (the "transferee") - 
(a) the amount of the deduction, if any, for a year of income in which the transfer takes place, shall be apportioned in such a manner as the Commissioner may determine to be just and reasonable between the transferor and the transferee; and 
(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. 
(5) For the purposes of subparagraph (4) where an interest in land is a leasehold interest and that leasehold interest comes to an end, then that interest shall be deemed to have been transferred - 
(a) if an incoming tenant makes a payment to the outgoing tenant in respect of assets representing the expenditure in question, to the incoming tenant; and 
(b) in any other case, to the owner of the interest in immediate reversion on the leasehold interest. 
(6) Where the amount of a deduction under this Part has been in any manner varied for a year, then deductions for subsequent years of income shall be so adjusted that the sum of deductions for all years of income shall not exceed the expenditure

Definitions for Part IV. 
23. 

In this Part - 
"agricultural land" means land occupied wholly or mainly for the purposes of a trade of husbandry;
"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

Buildings and machinery. 

24.

(1) Subject to this Schedule, where capital expenditure is incurred – 
(a) 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 or lessee of that building, uses that machinery in that building for the purposes of manufacture; or 
(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;
Finance Act 2004 1 Jan 2005 Kenya Gazette 3 Jan 05 
(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);
Finance Act 2009 Effective 01 January 2010 Finance Act, 2015 effective 1st Jan 2016
(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"), 
either both the building and machinery referred to in subparagraph (a) 
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. 
(2) The amount of the investment deduction under sub paragraph (1) shall :- 
(a) where the construction, installation or use, as the case may be, occurs outside the municipalities of Nairobi or Mombasa, 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, 1988________60% 
1 st January, 1989________75% 
1 st January, 1990________85% 
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 2005_________100%
1 st January 2006_________100%
1 st January 2007 _________100%
1 st January 2008_________100%
(b) where the construction, installation or use, as the case may be, occurs within the municipalities of Nairobi and Mombasa, 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 9 Jan 04 
1 st January, 1988_______10%
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 2005_________100%
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.
(3) For the purposes of this paragraph -
(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 -
(i) the expenditure actually incurred on the construction thereof shall be left out of account for purposes of any deduction allowed under subparagraph (1); but
(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;

"new" means not having previously been used by any person, or acquired or held (other than by a supplier in the normal course of trade) by any person for use by the person incurring expenditure under this paragraph.

Capital expenditure on buildings and machinery for purposes of manufacture under bond. 
 24.A

(1) Subject to this Schedule, where capital expenditure is incurred -
(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,
there shall be deducted in computing the gains or profits of the person incurring that expenditure for the year of income in which the building and machinery referred to in paragraph (a) or the machinery referred to in paragraph (b) was first used for manufacture under bond, a deduction referred to as an investment deduction.

(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:
Provided that where the person incurring that capital expenditure ceases to be eligible to engage in manufacture under bond within three years of the date on which that manufacture was commenced, an amount equal to the deduction allowed under this Part reduced by any deductions which might have been deductible in respect of that capital expenditure under Part I and Part II if a deduction under this Part had not been allowable, shall be taken into account as a trading receipt in computing the gains and profits of that person for the year of income in which he ceases to be eligible to engage in the manufacture under bond.
(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.

(1)Subject to this Schedule, where capital expenditure is incurred on or after the 1st January, 1992 on the construction of a building or on the purchase and installation of machinery by or for an export processing zone enterprise for use in an export processing zone for the purpose of carrying out the business activities for which that enterprise was licensed as an export processing zone the enterprise within the first twenty years starting with the year in which that enterprise first became exempt from corporation income tax under paragraph 2(e) of the Third Schedule of this Act, a deduction, referred to as an investment deduction, equal to one hundred percent of the capital expenditure may be taken at the discretion of the enterprise against the gains or profits of that enterprise in the year in which the building or machinery is first used.
 (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

Subject to this Schedule, where capital expenditure is incurred on the construction of a building or on the purchase and installation of machinery by or for a Special Economic Zone Enterprise for use by the enterprise in carrying out the business activities for which it was licensed, the enterprise shall be entitled to an investment deduction, equal to one hundred percent of the capital expenditure, against the gains or profits of that enterprise in the year in which the building or machinery is first used.

Statutory Amendment Law No 11 of 2017 
24C

1-Where capital expenditure is incurred on the construction of liquefied petroleum gas storage facilities with a minimum capital investment of four billion shillings and a minimum storage capacity of a total value of fifteen thousand metric tonnes, there shall be deducted in computing the gains or profits of the person incurring that expenditure for the year of income in which the liquefied petroleum gas storage facilities were first used for storage of liquefied petroleum gas, a deduction referred to as an investment deduction.
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 

Subject to this Schedule, where capital expenditure is incurred on the construction of a building or on the purchase and installation of machinery by or for a Special Economic Zone Enterprise located outside Nairobi and Mombasa Counties, for use by the enterprise in carrying out the business activities for which it was licensed, the enterprise shall be entitled to an investment deduction, equal to one hundred and fifty percent of the capital expenditure, against the gains or profits of that enterprise in the year in which the building or machinery is first used.

Shipping 
25. 

Subject to this Schedule, where a resident person carrying on the business of a shipowner incurs capital expenditure to which this Schedule applies -
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. 

Finance Act 2009 Effective 01 January 2010 Finance Act 2012 01 January 2013
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 

Apportionment consideration for sale, exchanges, etc. of any property or of lease hold interest 
27.

(1)
(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.

(1) Unless the context otherwise requires, references in this Schedule to capital expenditure and capital sums in relation to the person incurring that expenditure, or paying those sums, do not include any expenditure or sum which is deductible otherwise than under this Schedule for the purpose of ascertaining his total income.
(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.

(1) Expenditure shall not be regarded for any of the purposes of this schedule as having been incurred by a person in so far as it has been, or is to be met directly or indirectly by a government or a local authority or by any person, whether in Kenya or elsewhere, other than the first mentioned person.
(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 –
(a) where the transfer is of the whole business, the deductions thereafter shall be made to the transferee;
(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. 

If a deduction is made under any Part in respect of property, or in respect of capital expenditure on property, in computing the gains or profits of a person for a year of income, then, to the extent to which that deduction has been made, no further deduction shall be made under that Part or any other Part or under any other provision of this Act in respect of, or in respect of capital expenditure on, that property in ascertaining the total income of that person for the same or a previous or subsequent year of income.

Increase of deductions. 
31. 

The amount of a deduction made under this Schedule may be increased to such an amount as may be prescribed by the Commissioner either generally, or in relation to a particular class of business, or in a particular instance.

Finance Act 2009 Effective 01 January 2010 Finance Act 2010 Effective 01 Jan 2011 

31A 

Where a person incurs capital expenditure on the purchase of machinery or on the construction of roads, bridges or similar infrastructure under a concessionairing arrangement, the deduction shall be spread and claimed in equal proportion over the period of the concession:
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

Subject to this Schedule, where a person incurs capital expenditure on the purchase or acquisition of the right to the use of a computer software, there shall be deducted, in computing his gains or profits for the year of income in which the software is first used and for subsequent years of income, an amount equal to one-fifth of that expenditure.

Other provisions. as to interpretation
32.

(1) In this Schedule, unless the context otherwise requires -
"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.

For the purposes of this Schedule,
“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 manufacture50% in the first year of use
(iii)Hospital buildings50% in the first year of use
(iv)Petroleum or gas storage facilities50% in the first year of use
(v)Residual value to item (a)(i) to (a)(iv)25% per year, on reducing balance in equal instalments*
(vi)Educational buildings including student hostels10% per year, on reducing balance in equal instalments*
(vii)Commercial building10% per year, on reducing balance in equal instalments*

(viii) Industrial Building**
(ix) Dock**

(b) Machinery —
10% per year, in equal instalments**
10% per year, in equal instalments**

(i)Machinery used for manufacture50% in the first year of use
(ii)Hospital equipment50% in the first year of use
(iii)Ships or aircrafts50% in the first year of use
(iv)Residual value items (b) (i) to (b)(iii)25% per year, on reducing balance in equal instalments*
(v)Motor vehicles and heavy earth moving equipment 25% per year, on reducing balance in equal instalments*
(vi)Computer and peripheral computer hardware software, calculators, copiers and duplicating machines 25% per year, on reducing balance in equal instalments*
(vii)Furniture and fittings10% per year, on reducing balance in equal instalments*
(viii) Tele communications equipment10% per year, on reducing balance in equal instalments*
(ix) Filming equipment by a local film producer licensed by the Cabinet Secretary responsible for filming 25% per year, on reducing balance in equal instalments*
(x)Machinery used to undertake operations under a prospecting right 50% in the first year of use and 25% per year, on reducing balance in equal instalments*
(xi)Machinery used to undertake exploration operations under a mining right* 50% in the first year of use and 25 per year, on reducing balance in equal instalments*
(xii) Other machinery10% per year, on reducing balance in equal instalments*

--
(c) Purchase
or an acquisition of an indefeasible right to use fibre optic cable by a telecommunication operator
10% per year, on reducing balance in equal instalments*

--
(d) Farmworks50% in the first year of use and 25% per year, on reducing balance in equal instalments*

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 electricity through 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. 

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