Kenya Depreciation

Kenya Revenue Authority Wear and Tear Rate Classes

The Kenyan Income Tax Act (Cap 470) grants wear and tear allowances under the Second Schedule through four rate classes applied on a declining-balance basis. Class I (37.5% per year) covers computers and peripheral hardware, heavy earth-moving equipment, and aircraft — assets with intensive use cycles. Class II (30%) covers motor vehicles including commercial trucks and passenger cars. Class III (25%) applies to machinery, industrial equipment, and general business plant not otherwise classified. Class IV (12.5%) is the residual category covering furniture, fixtures, and fittings. A Kenyan logistics company operating twelve delivery trucks valued at KES 36 million (new cost) places all vehicles in the Class II pool. In year one, 30% deduction of KES 10.8 million reduces the pool to KES 25.2 million; in year two, 30% of KES 25.2 million yields a KES 7.56 million deduction. The pool carries forward indefinitely, with disposals or scrappage triggering balancing deductions or charges that clear residual balances.

Investment Deduction for Manufacturing and Industrial Buildings

Kenya's investment deduction (ID) is a powerful incentive for manufacturing. Section 30 of the Income Tax Act allows a 100% investment deduction on the cost of buildings used for manufacturing, provided the company has investment of at least KES 200 million in a designated area. More generously, a 150% investment deduction is available for investments outside Nairobi, Mombasa, and Kisumu under Section 30A — meaning a manufacturer building a KES 500 million plant outside the three major cities can claim KES 750 million in total deductions. This exceeds the actual investment cost, generating significant tax losses to carry forward against future profits. The policy explicitly prioritises geographic distribution of industrial investment to reduce concentration in the three urban centres that account for over 70% of Kenya's formal economic activity.

Farm Works and Horticultural Deductions

Kenya's agricultural sector benefits from specific capital allowances beyond standard wear and tear classes. Farm works — including land clearing, levelling, planting of permanent crops, fencing, dips, boreholes, and installation of irrigation systems — qualify for a 100% deduction in the year of expenditure under Section 29 of the Income Tax Act. This immediate expensing provision recognises that agricultural capital investment typically takes years to generate revenue; allowing immediate write-off reduces the capital constraint for both smallholder and large-scale farmers. A horticultural exporter investing KES 80 million in greenhouse infrastructure and drip irrigation can deduct the full amount against income from the first year of operation, significantly reducing the effective tax cost of the investment. Kenya's cut-flower export industry — the third largest in the world — has benefited substantially from this provision since its introduction.