Free Taxation revision

1. TRUE or FALSE: When supply is more elastic than demand, the tax burden falls on the buyers, and demand is more elastic than supply, producers will bear the cost of the tax.

2. Fortunas limited, located in Nairobi, deals in wholesale of assorted vatable products sourced locally or imported. During the month of June 2021, the company made the following transactions:

ii. The purchases recorded during the month were as follows:

iii. The company paid the following services during the months:

iv. During the month, the company paid KES 27,971 and KES 34,765 for electricity and water bills respectively.
v. The transactions are inclusive of VAT at the rate of 16% where applicable

Required: Calculate for Fortunas Limited for June 2021:

a. Deductible input tax
b. Output tax
c. VAT payable (or refundable)

3. The role of the Intergovernmental Budget and Economic Council is:

4. Kenya’s ________is responsible for determining the allocation of national revenue among counties, and provides oversight of how national revenue is allocated to county governments.

5. TRUE or FALSE: Custom duty protects a country’s economy, residents, jobs, or environment, by controlling the flow of goods, especially restrictive and prohibited goods, into and out of the country.

6. _________is changeable on the whole of a gain which accrues to a company or an individual upon transfer of property situated in Kenya, whether or not the property was acquired before 1^st January 2015.

7. Madal works for as a General manager at Mombasa Steel Works. He has provided the following information relating to his income for the year ended 31 December 2021:
i. Basic monthly salary of KES 456,000 (PAYE KES 57,600 per month).
ii. He consumed food valued at KES 216,000 during the year which was fully paid by the company. The company operates a staff canteen which provides food to all staff.
iii. Due to the nature of his job, he was paid a hardship allowance of KES 18,000 per month.
iv. He contributed KES 57,600 per month towards a registered pension scheme while the employer contributed 15% of his monthly basic salary towards the same.
v. He was provided by the company with a pick-up of 2,000 cc which cost the company KES 3.36 million in June 2021. The net book value of the motor vehicle on 31 December 2016 was KES 1.92 million.
vi. Bills paid for him by the company during the year were KES 216,000 and KES 144,000 for electricity and telephone respectively.
vii. Madal’s employment terms are such that in the month of taking leave, he is paid leave allowance equivalent to 80% of one month’s basic salary. His leave fell due in June 2021.
viii. He was provided with a gardener and a watchman who are on the company’s payroll and received KES 27,600 and KES 31,200 per month respectively during the year.
ix. The company paid a life insurance premium for Madal of KES 18,000 per month with effect from 1 April 2021
x. The company operates a loan scheme for its senior staff. Madal took a loan of KES 2.4 million on 1 July 2021 at an interest of 5% per annum. The prescribed interest rate prevailing during the year was 14% per annum.
xi. He was provided with accommodation by the company in a rented house which the company paid a monthly rent of KES 72,000. The house was furnished by the company on 1 January 2021 at a cost of KES 216,000.
xii. Madal holds a savings account with Borabora Bank. On 15 July 2021, he receives KES 82,200 as interest from his savings account
xiii. His other income during the year was as follows:

Required
a. Madal’s taxable income for the year ended 31 December 2021
b. Tax payable (if any) from the income computed in (a) above.

8. The accounting technique used to periodically lower the book value of a loan or an intangible asset over a set period of time is referred to as:

9. Outline five(5) methods of collecting income tax in Kenya.

10. TRUE OR FALSE: Generally, withholding tax is good for the governments, but bad for the taxpayer.

11. Which of the following statements is/are not true?

12. Highlight three(3) reasons why the government needs to have a budget.

13. Outline seven (7) qualities of a good budget.

14. Where an industrial building is sold before use by the builder or contractor, the qualifying cost is:

15.  Zawadi runs a small-scale scrap metal business in Nairobi. Below is her income statement for the year ended 31 December 2023.

Additional information
i. Legal fees related to the following:

ii. The fixed assets of the business as of 1 January 2023 were as follows:

iii. Advertising expense was incurred on the erection of a billboard at the entrance to the scrap metal yard.
iv. The proceeds on the sale of scrap metal were quoted as inclusive of VAT at the rate of 16%.
v. Customs duty paid was in relation to the importation of the metal cutting equipment
vi. Marketing and promotions costs included KES 7,000 paid to the local authority as a fee for organizing an exhibition on scrap metal production within the yard.
vii. There was no disposal of fixed assets during the year ended 31 December 2023.

Required: Taxable income for Zawadi for the year ended 31 December 2023.

16. In (i)________assessment, the assessment is filed by the commissioner where the taxpayer has failed to file tax returns in accordance with the provisions of the tax law, whereas, (ii)______assessment is done by the taxpayer and submitted in the prescribed form.

17. Highlight the conditions that must me met to qualify for shipping investment deductions in Kenya.

18. TRUE or FALSE: Charitable donations are not liable to Customs duty charges.

19. Outline five(5) reasons for monitoring the county budget.

20. The taxpayer who wishes to dispute a tax decision lodges an objection against that tax decision by writing a notice of objection and lodging it with the Commissioner within 30 days of being notified of the decision before proceeding under any other written law. Highlight what should be stated in the notice.

21. Which of the following are some of the considerations that the national assembly should consider before passing a finance bill on raising revenue?