Tax incentives available to Agricultural Companies in Kenya

The Income Tax Act (Cap 470 Laws of Kenya) allows some incentives to Agricultural companies in the form of capital allowances. These allowances are made before determining the taxable income an Agricultural Company. This means that these capital expenditures are deducted as an expense against taxable income thereby reducing the taxable income of the Company. The main Capital allowance for Agricultural Companies is:

1. Allowance of capital expenditure on farm works.

Definition of farm works

Under the Second Schedule to the Income Tax Act (ITA) Farm works are defined to mean 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.

Is the full amount of capital expenditure on farm works an allowable expense against taxable income?

Yes, where a farmer incurs capital expenditure in the construction of these farm works for the exclusive use on the husbandry of the Agricultural land there shall be made, in computing his gains or profits for that year of income, a deduction equal to a hundred percent (100%) of that expenditure. This however is with the exception of farm houses.

What amount of capital expenditure is allowable for farm houses?

Where capital expenditure is on a farm-house, only one-third (1/3) of the capital expenditure is taken into account and allowed as a capital deduction. If however the use of the farm house is not in relation to the farm, the Commissioner may prescribe such lesser proportion of the Capital expenditure as a capital allowance as he may deem just and reasonable.

What about other farming assets?

Where capital expenditure is incurred on assets other than a farmhouse and the asset 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 capital allowance.