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Taxation For Public Sector Cat 1 Question Paper

Taxation For Public Sector Cat 1

Course:Bachelor Of Economics

Institution: Kenyatta University question papers

Exam Year:2010

KENYATTA UNIVERSITY
DEPARTMENT OF APPLIED ECONOMICS
EAE:201 TAXATION FOR PUBLIC SECTOR
CAT I 2010 SEMESTER 1
___________________________________________________________________________________________
ANSWER ALL QUESTIONS

QUESTION ONE
Makundi, a Tanzanian National came to Kenya for the first time in 2002……………. For the period from that date to 31 May 2005, he stayed in Kenya as follows:
1 January 2002 to 31 October 2002;
1 January 2003 to 31 May 2003;
1 January 2004 to 31 October 2004;
1 January 2005 to 31 May 2005.
Mr. Makundi left Kenya permanently on 1 June 2005.During the year ending 31 December 2004 and 31 December 2005, Makundi's income consisted of:

2004 2005
Ksh Ksh
Business in Kenya 40,000 -
Dividend from Kenya companies 24,000 24,000
Dividend from Tanzania companies 30,000 30,000
Business in Kenya (partly exercised in Kenya) 24,000 36,000
Rent income from property in Tanzania 20,000 20,000
Pension received in respect of services rendered to the defunct - -
East African Railways and Harbours - -
Paid from Kenya 100,000 130,000
Profit from a business carried on in London 20,000 20,000
Required
Determine, giving reasons, the total income chargeable to Income Tax of Mr Makundi for 2004 and 2005 after ascertaining his residence for the purposes of the Income Tax Act. (20 marks)

QUESTION TWO
Write short notes on
i.Insurance relief
ii.Specified sources of income

QUESTION THREE
Distinguish between direct and indirect taxation, giving examples of each. What do you think would be the consequences of a shift from direct taxation to indirect taxation?

QUESTION FOUR
Explain how a country may use its tax system to influence the general level of productivity.

QUESTION FIVE
(a)The income of a married woman living with her husband is deemed to be the income of the husband for the purposes of ascertaining his total income chargeable to tax. However, under certain circumstances, employment income of a married woman may be assessed separately.State the circumstances under which tax assessed on the husband may be collected from the wife. (5 marks)

(b)Mr F is a director of FG Limited a manufacturing company in which he owns 15% of the issued and fully paid up share capital. He earns a fixed salary of Ksh 160,000 p.a. The company is considering various additional means of remunerating Mr. F for the financial year starting on 1.7.2005. The proposals under consideration are as follows:
(i)Giving Mr. F a housing loan of Shs.1,000,000 at an interest of 3% p.a. repayable over a period of 15 years. Interest for the year will be calculated on the loan balance due on 1 July each year. Mr. F would be required to occupy his own house from the date of granting the loan. He is currently housed by the company.

(ii)Employing his wife at an enhanced salary of Ksh 480,000 p.a. instead of her continuing with her civil service salary of Ksh 300,000 p.a.

(iii)Issuing 1000 redeemable preference shares of Shs.5 nominal value, in consideration of his dedicated and loyal service to the company. The market price of these shares is currently estimated at Shs.20.

(iv)Providing a fully maintained company car of cc. rating 1799 instead of the current mileage allowance of Shs.6,000 per month.

(v)Increasing the company's contribution to the unregistered Executive Provident Fund from 5% of his basic salary to 10% per annum.

(vi)Paying his medical bills and those of family directly to the doctor instead of the current system where he has to pay the doctor and then claim reimbursement from the company. He is also entitled to claim a maximum of Shs.30,000 per annum. His normal medical bills are approximately Shs.40,000 per annum. The company has a medical scheme for directors and executive staff.
Required
Explain the income tax implication for Mr. F for each of the above proposals. Show under which proposals tax due would be collected under the P.A.Y.E. system. (15 marks)
(Total: 20 marks)

Taxation For Public Sector Cat 1 Question Paper

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