Kenyan tax law allows a deduction for expenditure wholly and exclusively incurred in producing income. The test is not whether an expense feels business-like but whether you can evidence it. These are the deductions SMEs most often leave on the table.
The seven most-missed deductions
Each of these is ordinary and allowable, and each needs a supporting invoice or a documented policy to survive review.
- Capital allowances on laptops, machinery and fit-out works, claimed over the statutory rates rather than expensed in one year
- Home-office and utility apportionment for owner-managers working partly from home
- Business use of a personal vehicle, supported by a mileage log
- Professional subscriptions, licences and practising certificates
- Staff training and certification directly related to the work performed
- Bad debts actually written off, with evidence of recovery attempts
- Bank charges, mobile money transaction fees and merchant commissions
Records are the deduction
An expense without a compliant invoice is, in practice, not deductible. Keep supplier eTIMS invoices, bank statements and M-Pesa statements for at least five years, and reconcile them monthly so gaps are found while suppliers still remember the transaction.
What is never allowable
Personal drawings, fines and penalties, entertainment beyond the permitted limits, and capital expenditure claimed as a repair are all commonly disallowed. Mislabelling capital spend as repairs is a particular audit trigger.
The quarterly habit that pays for itself
A short quarterly review of the ledger, rather than an annual scramble, catches misclassified costs while they can still be corrected and gives an accurate picture for instalment tax.
Frequently asked questions
- Can I deduct rent if I run my business from home?
- You can deduct a reasonable apportionment of rent and utilities based on the floor area and time used for business, provided the basis is documented and applied consistently.
- How long should I keep records for KRA?
- Keep books and supporting documents for at least five years, since that is the period KRA can generally reopen for assessment.