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As a tax specialist, briefly explain how you would treat the following issues for tax purposes: (i) Mr Jan Philips is an expatriate working for a...

      

As a tax specialist, briefly explain how you would treat the following issues for tax purposes:
(i) Mr Jan Philips is an expatriate working for a non-resident company in your country. During the year ended 31 December 2008, he received a passage allowance of Sh400,000 to enable him visit his family in his horn country. He did not include the passage allowance as part of his employment income for the year ended 31 December 2008.
(ii) Trans Country Bus Services Ltd. runs a public service transport business in your country. The bus company also undertakes transport business across the borders to the neighbouring countries. The company did not include the revenue arising from cross- border transport amounting to Sh.2,000,000 in its tax returns for the year ended 31 December 2008.
(iii) During a business trip to Dubai, Mrs Agnes Latoya, a resident of your country, purchased ten suits for her husband's use at a cost of Sh.300,000. However, upon her return the husband did not like the suits.
Mrs Agnes Latoya thereafter sold the suits and realised a profit of Sh.50,000. She included this profit with her other income for the year ended 31 December 2008.
(iv) Rahani Hotels Ltd. offered the following services to foreign tourists for which it did not charge VAT:
- Restaurant services.
- Game drives.
(v) The revenue authority has written to the hotel demanding payment of the VAT on the above services.

  

Answers

Wilfred
i) Mr Jan Philips is an expatriate working for a non-resident company in your country.
During the year ended 31 December 2008, he received a passage allowance of Sh400,000 to enable him visit his family in his horn country. He did not include the passage allowance as part of his employment income for the year ended 31 December 2008.

- International passengers i.e. for the air ticket for expatriate staff and their families is a nontaxable benefit provided the passage is not converted into any other usage or used for other destinations apart from home-place of work-home, and the expatriate does not engage in business, he is not a citizen, he is recruited from outside solely to serve his employer so if Mr Jan Philips meet the above mentioned conditions regarding his passage of Ksh400,000 then it was proper not to include it as employment income.

ii) Trans Country Bus Services Ltd. runs a public service transport business in your country.
The bus company also undertakes transport business across the borders to the neighbouring countries. The company did not include the revenue arising from crossborder transport amounting to Sh.2,000,000 in its tax returns for the year ended 31 December 2008

- If Trans country Bus service Ltd. is a resident company then its taxable on all its business income earned within and outside the country. Therefore it should include Sh2,000,000 in its tax return for the year. However if the company is non-resident it should not include income earned from outside in its return of income.

iii) During a business trip to Dubai, Mrs Agnes Latoya, a resident of your country, purchased ten suits for her husband's use at a cost of Sh.300,000. However, upon her return the husband did not like the suits. Mrs Agnes Latoya thereafter sold the suits and realised a profit of Sh.50,000. She included this profit with her other income for the year ended 31 December 2008.

- Ten pairs of suits bought once,is outside the normal purchase for an average person‘s use. This might imply that Mrs Agnes had an idea of selling them for a profit. So by looking at the subject matter of this transaction, it is such that it would not be held as an investment i.e. ten suits at Sh300,000 and therefore it is presumed that any profit on resale is a trading
profit and therefore showing it as a profit was correct

iv) Rahani Hotels Ltd. offered the following services to foreign tourists for which it did not charge VAT:
- Restaurant services.
- Game drives.
The revenue authority has written to the hotel demanding payment of the VAT on the above services.
- The restaurant services are vatable and therefore Rehani Hotel Ltd should have charged VAT.
- The game drives are exempt since this is a form of transport service.
Wilfykil answered the question on February 15, 2019 at 09:03

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