Capital allowances on business assets reducing taxable profit.
Capital allowance
—
Taxable profit after allowance
—
Corporate tax
—
Tax saved by allowance
—
Turning a purchase into a tax deduction
When a business buys equipment, the cost is not deductible all at once like a salary or a rent payment. Instead the Income Tax Act lets you write it off gradually through capital allowances, also called wear-and-tear allowances and investment deductions. The idea is that an asset earns income over several years, so its cost should be matched against profit over those years rather than dumped into one. Each year you claim a slice of the asset cost, that slice reduces your taxable profit, and the reduced profit produces a smaller corporate tax bill. The allowance is not cash in your pocket, it is a deduction that lowers the tax you owe.
This calculator does the arithmetic for one year and one asset. You enter what the asset cost, pick its class, and the tool applies that class rate to the cost to get the allowance. It then subtracts the allowance from your profit before allowances, taxes the remainder at the corporate rate, and compares that with the tax you would have paid with no allowance at all. The gap between the two is the tax the allowance saved you this year.
How the asset classes work
Different assets wear out at different speeds, so Kenya groups them into classes with different annual rates. The rates this calculator applies are indicative and presented to illustrate the mechanism: machinery and industrial buildings at 10 percent a year, computers, software and motor vehicles at 25 percent, and a qualifying investment deduction at 50 percent in the first year for certain large or strategically located investments. These bands have been revised more than once, and the investment deduction in particular has specific conditions, so treat the percentages here as a model and confirm the rate that applies to your asset with the Kenya Revenue Authority. The structure, a fixed percentage of cost claimed each year against profit, is stable even when the exact rates move.
Writing off a KES 2 million machine
Take a manufacturer that buys machinery for KES 2,000,000 and expects a profit before allowances of KES 6,000,000 for the year. Machinery sits in the 10 percent class in this model, and the company pays corporate tax at the rate applied here of 30 percent. The year-one effect:
| Step | Working | KES |
|---|---|---|
| Capital allowance this year | 10% of 2,000,000 | 200,000 |
| Taxable profit after allowance | 6,000,000 less 200,000 | 5,800,000 |
| Corporate tax with the allowance | 30% of 5,800,000 | 1,740,000 |
| Tax if no allowance claimed | 30% of 6,000,000 | 1,800,000 |
| Tax saved this year | 1,800,000 less 1,740,000 | 60,000 |
The KES 200,000 allowance saves KES 60,000 of tax, which is the allowance multiplied by the 30 percent rate. The bars below contrast the tax bill with and without the claim.
What this single-year view leaves out
The important caveat is that most allowances repeat. A 10 percent machinery allowance does not vanish after year one, it keeps reducing the written-down value each year until the asset is fully relieved, so the lifetime tax saving is far larger than the KES 60,000 shown here. This tool deliberately models the first year so you can see the immediate effect of a purchase decision, but when you compare assets, remember the 25 percent classes front-load the relief and reach full write-off much faster than the 10 percent classes. Faster relief is worth more in present-value terms even when the total deduction is the same.
A common error is claiming an allowance on the full invoice when part of the spend is not a qualifying capital cost, or claiming on an asset that does not yet qualify because it has not been brought into use. Allowances generally start when the asset is in use in the business, not merely paid for. And if you later sell the asset for more than its written-down value, a balancing charge can claw some relief back. None of that is captured in a one-year snapshot, so use this as a planning estimate and confirm the qualifying cost, the class, and the current rate with the KRA or your tax adviser before you file.
Is a capital allowance the same as the tax I save?
No, and conflating the two is the most common misunderstanding. The allowance is the amount you deduct from profit. The tax saving is that allowance multiplied by your corporate tax rate. In the example a KES 200,000 allowance at a 30 percent rate saves KES 60,000 of tax, not KES 200,000. The calculator shows both so the distinction is clear.
Can a sole trader or partnership claim capital allowances?
Yes, capital allowances are available to unincorporated businesses too, not only companies, because they reduce business profit before tax. The difference is the rate applied to the remaining profit. This calculator uses the resident company rate modelled at 30 percent, so a sole trader taxed under the individual PAYE bands would see a different tax saving on the same allowance. Confirm your own rate position with the KRA.