Capital allowances are deductions the Kenya Revenue Authority (KRA) allows when your business buys qualifying assets — machinery, motor vehicles, computers, or buildings used for business purposes. They replace accounting depreciation and can meaningfully lower your taxable income each year.
Investment Deduction vs. Wear & Tear Allowance
Kenya's Income Tax Act offers two main capital allowance routes. The investment deduction applies to new buildings and machinery in an industrial or hotel setting, giving you a 100% deduction on installation cost in the first year. The wear and tear allowance applies to most other assets on a reducing-balance basis at rates of 37.5% (computers), 25% (vehicles), and 12.5% (industrial buildings).
Step-by-Step: How to Claim
- Maintain an asset register: Record the acquisition date, cost, and class of every asset.
- Categorise correctly: Misclassifying a vehicle as machinery changes your rate from 25% to 12.5%.
- Complete schedule 4: Submit the KRA capital allowances schedule with your income tax return.
- Attach supporting invoices: KRA may request proof of acquisition during audit.
Common Mistakes to Avoid
Many businesses claim capital allowances on assets they do not own, or continue claiming after an asset is fully written off. Others forget to claim at all, overpaying tax for years. A qualified tax adviser can reconcile your asset register annually and ensure every allowable deduction is captured.
At Avatechtax, our tax compliance team reviews capital allowances as part of our Business and Corporate tax packages. Contact us to schedule a free asset register review.
