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Introduction To Tax Question Paper
Introduction To Tax
Course:Diploma In Business Management
Institution: Kca University question papers
Exam Year:2009
UNIVERSITY EXAMINATIONS: 2009/2010
STAGE III EXAMINATION FOR DIPLOMA IN BUSINESS MANAGEMENT
DFM 100: INTRODUCTION TO TAX
DATE: DECEMBER 2009 TIME: 1½Hours
INSTRUCTIONS: Answer Any THREE Questions
QUESTION ONE (20 MARKS)
You have been approached by Mr. Kenneth Kamau, seeking your assistance in the computation of his
tax liability for the year ended 31 December 2008. He has provided you with the following
information:
Mr. Kamau works for Chip.com Ltd. as the technical manager. During the year ended 31December
2008. He received the following emoluments:
1. A salary of Ksh. 600,000 per month.
2. An end of the year bonus Ksh. 250,000
3. He is housed by the company in a house whose market rental value is Ksh. 180,000 per month.
The employer has rented the house from an estate agent.
4. He receives entertainment allowance fees amounting to Ksh. 90,000 per month.
5. He has free use of a company vehicle since at times he works late. The vehicle, with an engine
capacity of 2,200cc had cost ksh. 3,600,000 in the year 2005.
6. School fee for his children amounting to Ksh 600,000 for the year. The employer pays tax on
this benefit.
2
Required:
a) Compute the taxable income for Mr. Kamau for the year ended 31 December 2008.
(14 Marks)
b) Determine tax payable . (6 Marks)
QUESTION THREE (20 MARKS)
Write notes on the following:
a)Tax incidence (5 Marks)
b)Tax impact (5 Marks)
c)Tax avoidance (5 Marks)
d)Tax evasion (5 Marks)
QUESTION FOUR (20 MARKS)
a. Explain the concept of the “tax shifting” clearly outlining the importance to policy makers.
(5 Marks)
b. Explain the factors influencing tax shifting (15 Marks)
QUESTION FIVE (20 MARKS)
Discuss in detail the reasons as to why the government levies taxes.
(20 marks)
RATES OF TAX (Including wife’s employment, self employment and professional income rates of tax). Year of income 2008.
Monthly taxable pay Annual taxable pay Rates of tax
(shillings) (shillings) % in each shilling
1 - 10164 1 - 121968 10%
10165 - 19740 121969 - 236880 15%
19741 - 29316 236881 - 351792 20%
29317 - 38892 351793 - 466704 25%
Excess over 38892 Excess over - 466704 30%
Personal relief shs.1.162 per month (shs.13,944 per annum)
Prescribed benefit rates of motor vehicles provided by employer
Monthly Annual
rates rates
(shs.) (shs.)
Capital allowances:
Wear and tear allowances:
Class I 37.5%
Class II 30% (i) Saloons, Hatch Backs
Class III 25% and Estates
Class IV 12.5%
Industrial building allowances: Upto 1200 cc 3,600 43,200
Industrial buildings 2.5% 1201 - 1500 cc 4,200 50,400
Hotels 4.0% 1501 - 1750 cc 5,800 69,600
Farm work allowances 33.3% 1751 - 2000 cc 7,200 86,400
Investment deduction allowances: 2001 - 3000 cc 8,600 103,200
2003 - 70% Over 3000 cc 14,400 172,800
2004 - 100%
2005 - 100% (ii) Pick-ups, Panel Vans (Uncoverted)
Shipping investment deduction 40%
Mining allowance: Upto 1750 cc 3,600 43,200
Year 1 - 40% Over 1750 cc 4,200 50,400
Year 2-7 - 10% (iii) Land Rovers/ Cruisers 7,200 86,400
OR 2% of the initial capital cost of the vehicle for each month.
Commissioner’s prescribed benefit rates
Monthly rates Annual rates
Services shs. shs.
(i) Electricity (common or from generator) 1,500 18,000
(ii) Water (Communal or from a borehole) 500 6,000
(iii) Provision of furniture (1% of cost to employer)
If hired, the cost of hire should be brought to charge
(iv) Telephone (Landline and mobile phones) 30% of bills
Agriculture employees: reduced rates of benefits
(i) Water 200 2,400
(ii) Electricity 900 10,800
Other benefits:
Other benefits for example, servants, security, staff meals etc are taxable at the higher of fair market value and actual cost
to employer.
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