The taxman netted an estimated Sh5.24 billion from corporate earnings after the Treasury successfully rallied lawmakers to reduce pretax capital expense deductions.
The Treasury estimates the KRA cut the amount it used to forego on corporate income tax as a result of deductible expenditures on investments in machinery and buildings to Sh56.74 billion last year from Sh61.98 billion the year before.
This means the KRA received an additional Sh5.24 billion from earnings by corporate bodies, cash which was not previously collected as companies, co-operatives and trusts deducted higher capital allowances to recoup the investment in buildings and machinery.
The taxman netted an estimated Sh5.24 billion from corporate earnings after the Treasury successfully rallied lawmakers to reduce pretax capital expense deductions.
The Treasury estimates the Kenya Revenue Authority (KRA) cut the amount it used to forego on corporate income tax as a result of deductible expenditures on investments in machinery and buildings to Sh56.74 billion last year from Sh61.98 billion the year before.
This means the KRA received an additional Sh5.24 billion from earnings by corporate bodies, cash which was not previously collected as companies, co-operatives and trusts deducted higher capital allowances to recoup the investment in buildings and machinery.
“The decline (in tax expenditures) is attributed to the fact that allowances related to the corporate income tax underwent major reforms in 2020 with a harmonisation and reduction in the amount of wear and tear allowances,” the Treasury officials wrote in the inaugural Tax Expenditure report for 2020.
The Tax Laws (Amendment) Act 2020 – enforced April 25, 2020 – scrapped the 100 percent allowance on investment in buildings and machinery that firms in major urban areas used to deduct from income for purposes of taxation, replacing it with reduced rates of deductions.
For example, investment deductions for buildings, machinery, and warehouses for manufacturing and farming were cut from 100 percent to 50 percent in the first year and 25 percent thereafter on reducing balance.
The wear and tear allowances for vehicle and earth moving equipment fell to 25 percent of the value from 37.5 percent, while that for computers and associated equipment dropped to 25 percent from 30 percent.
Treasury estimates show the drop on deductible allowances to factor in depreciation of machinery such as motor vehicles and computers (wear and tear) slashed accruing tax expenditures by half to Sh8.82 billion last year from Sh17.71 billion in 2019.
Tax benefits on-farm works and agricultural land deductions also fell 52.4 percent to Sh1.28 billion, while deductions for industrial buildings dropped 34.63 percent to Sh7.37 billion.
However, tax losses as a result of plant and machinery deductions rose 9.78 percent to Sh29.41 billion, while that for investment in buildings more than doubled to Sh8.55 billion from Sh3.73 billion – a 129.15 percent jump.
Tax expenditures are the result of concessions or preferential treatment to particular classes of taxpayers or activities largely aimed at making prices affordable to consumers and increasing production or investment leading to job opportunities.
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