Hbc2123:Introduction To Taxation Question Paper
Hbc2123:Introduction To Taxation
Course:Bachelor Of Commerce
Institution: Meru University Of Science And Technology question papers
Exam Year:2013
QUESTION ONE (30 MARKS)
a) Distinguish between a direct and indirect tax. Is V.A.T a direct or indirect tax? (5 marks) b) Mr. Mwangi is a hardware merchant. He purchases cement from Mombasa cement limited, which he then sells to his customers. Both Mwangi and Mombasa cement attract 16% V.A.T If the cost of production by Mombasa cement limited is Shs.440 per 50kg bag, at what price should Mwangi sell a bag of cement, including V.A.T. (5 marks) c) It is common in Kenya to have individuals who cannot distinguish between taxes and charges. Explain the meaning between a tax and prices, Licenses a (5 marks) d) Describe any FIVE characteristics or essentials of an optimum tax system (5 marks) e) Discuss tax avoidance and tax evasion. What are the causes of tax evasion? (5 marks) f) A whole time service director earns Shs.700,000 p.a as basic salary and other benefit e.g. motor car, house servants e.t.c. worth Kshs.530,000. Employer pays to the Landlord Kshs.35,000 per month. Determine his house benefit and tax liability. (5 marks)
QUESTION TWO (20 MARKS)
a) Discuss tax amnesty and its conditions for one to be considered. (5 marks) b)
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Salary Kshs.350,000 (P.AY.E Kshs.30,000). .A.Y.E 17,000) Pension received from former employment Kshs.100,000 (P.A.Y.E Nil)
(10 marks)
c) Explain the basis on which the income from employment is determined for tax purposes. (5 marks)
QUESTION THREE (20 MARKS)
Makombe works with Malimingi Limited and has provided the following information for the year ended 31st December 2011.
1. Salary Kshs.150,000 per month and P.AY.E. Kshs.32,000. 2. Makombe had a business whose taxable income was agreed at Kshs.400,000 Net. 3. Malimingi Limited provided a company house to Mr. Makombe where rent of similar houses was Kshs.30,000 per month. 4. Makombe works overtime and his income is Kshs.20,000 per month. 5. Makombe owns rented property and receives Kshs.60,000 as rent per month. During the year he incurred Kshs.60,000 in renovations, repairs and painting before letting the property. 6. He was given free goods from the company as Christmas gift worthy kshs.40,000 during the year.
Required:
a) Work out taxable income for Mr. Makombe. (10 marks) b) Compute tax payable on the income computed above. (6 marks) c) What are the penalties for not filling assessment form for the year of income? (4 marks)
QUESTION FOUR (20 MARKS)
Mr. Hatari and Mr. Suleiman are partners trading in the name Baraka Enterprises and sharing profits and losses in the ratio of 3:2 respectively. They have presented the following profit and loss account for the year ended 31st December 2012.
Income: Sales Revenue 6,882,000 Proceeds from sale of Fixed Assets 190,000 Refund of VAT 41,250 Interest on Post Bank Savings Account 8,750 Dividend (net) 42,800 Total Income 7,164,800
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Expenditure: Cost of sales 1,591,500 National Hospital Insurance Fund Contribution 108,750 National Social Security Fund 170,000 Lorry Maintenance expenses 1,005,750 Salaries to partners 800,000 Household expense 96,250 Repairs and Maintenance - buildings 75,000 Advertising 156,750 Insurance Premiums 125,000 Interest on Loan 200,000 Subscriptions to trade associations 40,000 Donations 20,000 Legal expenses 98,000 Income expenses 86,650 Bad debts 61,750 Water and Electricity 81,000 Depreciation 19,500 4,975,900 Net Profit 2,188,100
Additional information:
1. Included in Sales Revenue were goods valued at Shs.150,000 consumed by the partners. These goods had cost Shs.80,000 which was included in cost of sales. 2. Insurance premiums include Shs.70,000 incurred on the life insurance policy of Suleiman. 3. Bad debts comprise: a. Increase in general provision Shs.2,000 b. Increase in specific provision Shs.41,750 4. Interest on loan and legal expenses relate to a mortgage acquired by Mr. Hatari for purchase of his house. 5. Salaries to partners comprise: a. Mr. Hatari Shs.500,000 b. Mr. Suleiman Shs.300,000
Total Shs.800,000
Required: a) The adjusted partnership profit on loss for the year ended 31st December 2012. (16 marks) b) An allocation of the adjusted profit or loss between the partners. (4 marks)
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QUESTION FIVE (20 MARKS)
a) With reference to the Income Tax Act (Cap 470), explain the tax treatment of the following: i) Dividend (3 marks) ii) Interest (3 marks) iii) Rent (3 marks) b) Explain the various types of returns on income. (4 marks) c) Briefly explain the responsibility of partners with respect to; i) Filing of the partnership tax returns (4 marks) ii) Penalties for late payment of tax (3 marks)
Appendix: various prescribed rates:
Capital Allowances
(a) Wear and tear allowances: (WTA) CLASS I 37.5% CLASS II 30% CLASS III 25% CLASS IV 12.5% (b) Industrial building allowance (IBA) Industrial buildings 25% Hotels. 2006 4% 2007 to date 10% (c) Farm works allowance (FWA) 2006 33% 2009 to date 100% (d) Investment deduction allowance (IDA) 2003 70% 2004 100% 2006 to date 100% (e) Shipping investment deduction 40% (f) Mining allowance Year I 40% Year 2 – 7 10%
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PRESCRIBED BENEFIT RATES OF MOTOR VEHICLES PROVIDED BY EMPLOYER
i. Saloon, Hatch Backs and Estate Monthly Rates Annual Rates Sh. Sh.
Up to – 1200cc 3,600 43,200
1201 – 1500cc 4,200 50,400
1501 – 1700cc 5,800 69,600
1751 – 2000cc 7,200 86,400
2001 – 3000cc 8,600 103,200
Over – 3000cc 14,400 172,800
ii. Pick – ups, Panel Van (unconverted)
Upto – 1750cc 3,600 43,200 Over – 1750cc 4,200 50,400
iii. LandRovers/Cruisers: 7,200 86,400
OR 2% of the initial capital cost of the vehicles each month, whichever is higher.
Graduated scale for 2006 – 2013 (P.a)
Rate
On first 121,968 10%
Next 114,912 15%
Next 114,912 20%
Next 114,912 25%
Excess of 466,704 30%
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