Timber sellers have been dealt a blow after the National Treasury removed a preferential treatment that allowed them to deduct business expenses incurred when remitting income taxes to the Kenya Revenue Authority (KRA).
The Finance Act 2025, which was recently signed by President William Ruto, has deleted timber-related expenses from the list of allowable tax income deductions—dealing a blow to timber sellers who will now face higher tax obligations.
“This deletion will adversely impact taxpayers who earn income from the sale of timber or rights to fell timber, as it would disallow the deduction of the cost of acquiring such rights or the value of standing timber from their taxable income” analysts at law firm, Bowmans said in a brief.
“As a result, income tax could be levied on gross proceeds rather than on actual profits, potentially creating a tax liability even where the taxpayer incurs an economic loss. Denying the deduction of legitimate business expenses may raise constitutional issues around equity and the fair distribution of the tax burden, and could provide grounds for future legal challenges,” they added.
The Finance Act 2025 Act has deleted timber-related expenses from the list of allowable deductions including the income earned by a person from the sale of timber or of the right to fell timber and the land was acquired for valuable consideration, and the amount that the KRA may determine as being the reasonable cost of the purchase of the standing timber at the time the owner acquired the land.
The law has further deleted the provisions on the gains arising from the sale of standing timber by a person who has purchased the right to fell timber, and the price paid for the right to purchase or fell timber as determined by the KRA as being just and reasonable.
The policy change is likely to put strain on timber sellers who were only recently slapped with higher permit fees by the Kenya Forestry Service.
A schedule that took effect from July 13, 2024, for example, shows that the cost of acquiring movement permits for transporting timber increased from Sh2,000 to Sh25,570.
The timber industry in Kenya has witnessed high growth in recent years, buoyed by a boom in the construction industry.
Estimates by the Kenya Association of Manufacturers show that Kenya’s timber and furniture sector contributes approximately 1.3 percent to the national gross domestic product, with an approximate economic output of Sh125.6 billion.
