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Miraa and exotic tree growers will be allowed to deduct capital expenses incurred during farming before taxation in proposed changes by the Treasury that would lower the tax burden on them.
This concept is known as a tax-deductible expense whereby any expenditure made is considered necessary and reasonable and helps a business to generate income.
It is usually deducted from the company’s income before taxation and helps to reduce its gross profits and hence the amount of tax payable.
By subtracting eligible expenses from their income, taxpayers can effectively retain more of their earnings. This had the added benefit of stimulating the economy, as the taxpayer now has greater disposable income that they can pump into the economy.
Treasury Cabinet secretary John Mbadi has proposed amendments to the Income Tax Act to include miraa as a permanent or semi-permanent crop that qualifies for a tax-deductible expense treatment.
The Treasury also wants to include eucalyptus, pine, cypress, tree tomato, and guava on the list of permanent or semi-permanent crops.
If approved, farmers who grow these crops and trees will reduce their tax burdens by claiming capital expenses they incurred in their farming, in line with the Income Act.
“Without prejudice to subsection (1), in computing for a year of income the gains or profits chargeable to tax under section 3(2)(a), the following amounts shall be deducted—expenditure of a capital nature incurred in that year of income by the owner or tenant of agricultural land, as defined in the Second Schedule, on clearing that land, or on clearing and planting thereon permanent or semi-permanent crops,” says the Act.
The crops that are currently classified as permanent or semi-permanent are cashew nuts, citrus, cloves, coconuts, coffee, essential oils, New Zealand flax, passion fruit, pawpaw, pineapples, pyrethrum, sisal, wattle, sugar cane, tea and rubber.
Others are vanilla, apples, pears, peaches, plums, apricots, cocoa, macadamia, cinchona, tara, jojoba plant, bananas, roses, grape vines, avocadoes, and mangoes.
The move by the Treasury more than a year after President William Ruto lifted the ban on logging, allowing farmers to harvest their trees for sale amid growing demand for timber for housing, furniture, and other uses.
Kenya produces about 32,000 tonnes of miraa annually valued at Sh13.1 billion. The crop is mainly grown in the Mt Kenya region, with about 80 percent of the crop sold to local consumers while 20 percent is exported.
Somalia is the main destination of Miraa exports from Kenya, buying 99 percent of the exported crop.
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