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Hbc2245:Taxation Issues Question Paper
Hbc2245:Taxation Issues
Course:Bachelor Of Commerce
Institution: Meru University Of Science And Technology question papers
Exam Year:2013
QUESTION ONE – 30 MARKS
(a) With an aid of decided cases, explain the main avenues of tax planning. (10Marks)
(b) Discuss the anti tax avoidance provisions as contained in the income tax Act CAP 470. (5Marks)
(c) Pioneer General Insurance Limited has the following details with respect to its financial year ended 31st December 2007.
Gross Premium 19,000,000 Claims paid 5,400,000 Claims outstanding: 1Jan 2007 -31st Dec 2007 1,640,000 Claims recovered on reinsurance 400,000 Legal expenses relating to claims 540,000 Commission of reinsurance accepted 2,800,000 Commission on reinsurance ceded 860,000 Reserve for unexpired risk: 1st Jan 2007 980,000 Agency expenses 1,560,000 Bad Debts 450,000 Investments income 890,000 Life insurance fund 1,540,000 Depreciation 630,000 Foreign exchange gains 420,000 Dividend from life assurance fund 180,000 Management Salaries 1,670,000 Bonus utilized in reduction of premium 425,000 Rental income on premises 1,260,000
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Repair or rental premises 280,000 Advertisement expenses 124,000 Purchase of furniture 120,000 Returned premium 1,230,000 Reinsurance premium paid 670,000
Additional Information
(1) The company acquired a saloon car for the General Manager for shs. 2,000,000 on 1st July, 2005. (2) Bad debts relate to compensation due from a reinsurance company under receivership. (3) Management salaries include wages amounting to shs. 670,000 for part-time employees working in the life assurance department.
Required: (i) Taxable profit or loss for Pioneer General Company Limited for the year ended 31st December 2007. (10Marks)
(ii) Tax payable (if any) from the profit and loss computed in (i) above. (5 Marks)
QUESTION TWO – 20 MARKS
(a) Discuss the main provisions regarding the authority to grant double taxation in Kenya. (5 Marks)
(b) Recently a Double Taxation Treaty has ratified with Canada. Explain with relevance to tax legislation the implication of this Treaty. (5Marks)
(c) Mrs. Gakendi is a Kenyan resident. In 2008, she earned income of shs. 240,000 in Kenya and taxable income from Canada shs. 120,000. Tax deducted in Canada was shs. 40,000. Kenya has a double taxation treaty with Canada.
Required: (i) Double taxation relief due to Mrs. Gakendi in Kenya (5Marks) (ii) Her total tax Liability for the year of income 2008 (5Marks)
QUESTION THREE – 20 MARKS
(a) Explain the main allowable deductions available for Petroleum Companies in Kenya. (5Marks)
(b) Titanic Limited, a Company incorporated in Kenya has recently concluded a Petroleum agreement with the government of Kenya. Under the terms of the Kenyan waters and shares the roceeds eith the government on a 50:50 basis. The company has subcontracted TNM Ltd to carry out exploration surveys along waters for a period of 3 months. You are provided with the following information with regard to Titanic Limited.
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Titanic Limited Income Statement
Gross income 1,000,000 Geological and geophysical costs 20,000 Intangible drilling costs 10,000 Production expenditure 5,000 Salaries and wages to production staff 2,000 Entertainment of directors children 4,000 Payment to government (50:50 basis) 1,000 Executive and general administration 1,000 Management fees to KLM consultancy 2,000 Professional fees to Ernest & Young for consultancy services Services fee paid to TNM Ltd 200,000 nterest on loan at arm’s length from ganda Commercial an 10,000 Exploration machinery purchased 10,000 (268,000) 732,000
Required:
(i) Compute the taxable profit for Titanic Limited. (10 Marks) (ii) Compute the amount of the payable by TNM Ltd and the dates for the payment. (5 Marks)
QUESTION FOUR – 20 MARKS
(a) Discuss the role of introducing technology development in taxation. (5Marks) (b) Explain the term tax clinic as used in taxation. (5Marks) (c) Discuss the elements of tax reforms in Kenya. (5Marks) (d) Explain the tax design and structure in Kenya. (5Marks)
QUESTION FIVE – 20 MARKS
Explain the taxation of the following business units:
(a) Venture capital firms (6Marks) (b) Unit trusts (8Marks) (c) Petroleum Subcontractors (6Marks)
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