CPA Advanced Taxation Professional practice in taxation Questions & Answers (PDF)

December 2025

2 Questions

Question 4a

As a senior officer with a tax consultancy firm, you are required to conduct a tax health check for a client and you are in the process of developing the scope of the tax health check.

Outline FOUR elements that you would include in the scope of the tax health check.

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Question 1b

The following are the financial statements for Lakers Ltd., a trading company that imports goods for the year ended 31 December 2024:

Lakers Ltd.
Statement of profit or loss and other comprehensive income
for the year ended 31 December 2024

	Sh.“000”
Sales	100,000
Cost of goods sold	(60,000)
	40,000
Exchange gain realised	2,000
	42,000
Operating expenses	(15,000)
Depreciation of plant and equipment	(1,500)
Impairment loss	(500)
Operating profit	25,000
Finance costs	(2,000)
Profit before tax	23,000
Tax expense	(6,900)
Total comprehensive income	16,100

Lakers Ltd.
Statement of financial position
as at 31 December 2024

	Sh.“000”
Non-current assets:
Plant and equipment	10,000
Current assets:
Inventory	30,000
Trade receivables	25,000
Cash and bank	5,000
	70,000
Equity and liabilities:
Share capital	48,000
Retained earnings	5,000
Trade payables and accruals	15,000
Current tax payable	2,000
	70,000

Additional information:

It was discovered in a customs audit in mid 2025 that certain imported goods recorded in the inventory in year 2024 were undervalued by 20% at import declaration, amounting to Sh.3,000,000 inclusive of penalties and interest.
Certificates of origin were missing for some imported consignment (goods from preferential trade partners) during the year 2024 and the preferential duty rates were incorrectly applied, with back duty due amounting to Sh.800,000.
Plant and equipment (qualifying imported machinery) attract investment allowances at 10% per annum.
Lakers Ltd. has a carried-forward tax loss from prior years of Sh.1,500,000.
Lakers Ltd. has incurred interest expense of Sh.500,000 paying bank overdraft.

Required:

(i) Prepare a statement of adjusted taxable profit for the year ended 31 December 2024 for the company, clearly showing adjustments for back duty on missing certificates of origin.

(ii) Explain FOUR moral or ethical issues arising from undervaluation and missing certificates of origin from the perspective of tax compliance.

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In an era of evolving tax framework, self-regulation of tax professionals by recognised professional bodies is an important component of the countries tax administration system in maintaining the integrity of the tax system.

Required:

Analyse FOUR benefits of having self-regulation of tax professionals by professional bodies over government oversight.

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Question 4a

During a tax seminar on “mitigating tax exposures”, the key note speaker observed that tax risk management plays a critical role in the development of tax planning strategies for an organisation.

Required:

(i) Summarise FOUR ways that a tax professional could use to quantify tax risk in an organisation.

(ii) Evaluate FOUR roles of tax risk management in the development of tax planning strategies of an organisation.

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Question 1a

You have been appointed as a tax advisor to a contractor involved in infrastructure projects for a County Government. The contractor has recently received conflicting tax assessment from both the Revenue Authority relating to withholding tax and County Government relating to contractual service levy. The contractor believes the charges are duplicative and not grounded in clear provisions. The delays in resolving the dispute have stalled payments and strained the contractor’s cash flows.

Required:

(i) Explain the tax dispute resolution mechanism available to the contractor under Kenyan tax laws.

(ii) Advise the contractor on the steps to take in resolving the tax dispute with the Revenue Authority and County Government.

(iii) Propose FOUR institutional reforms that the County Government could implement to avoid similar tax disputes with contractors in the future.

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Question 5a

In the context of tax compliance and advisory, the roles of a tax agent and tax representative are different yet they overlap.

With reference to the above statement, explain TWO distinguishing factors between a “tax agent” and a “tax representative”.

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April 2025

3 Questions

Question 5a

Tax practioners should evaluate whether any tax engagement is likely to pose a conflict of interest that would give rise to threat of compliance with fundamental principles.

With reference to the above statement, explain FOUR safeguards that should be put in place when instances of conflicts of interest are detected.

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Question 1a

Laptec Ltd. is a multinational corporation operating in the manufacturing and distribution sector in your country. As the company grows, it faces complex tax challenges related to value added tax (VAT), excise duty and corporation tax compliance. The management of the company has engaged you as a tax consultant to develop a tax risk management strategy to be adopted by Laptec Ltd.’s tax department in the process of managing the organisation tax risks.

Required:

Analyse FIVE key components to be included in the tax risk management strategy.

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Question 5b

Analyse FOUR reasons for the introduction of tax anti-avoidance provisions despite tax avoidance being a legal activity.

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December 2024

2 Questions

Question 1a

Tax practioners face significant ethical and moral challenges in their work primarily due to the dual obligations they have to the client and the revenue authority. Balancing these responsibilities can be complex as they must navigate conflicting interests while adhering to legal and ethical standards.

Required:

Evaluate THREE ethical and moral challenges faced by tax practioners in the professional tax practice.

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Question 2a

Bright Star Electronics Enterprise is a small business operating in the retail sector. The business has experienced steady growth in sales over the years. The owner, John Irungu handles most of the financial and accounting tasks. The revenue authority has noticed discrepancies in the tax returns over the last two years where there are significant variations in the reported income and expenses. The business has also claimed several large deductions that appear unusual for the size of the business. These red flags prompted the revenue authority to issue a notice of tax audit. John Irungu has engaged you as a tax agent to assist him in this matter:

Required:

(i) Explain to John Irungu THREE objectives of a tax audit initiated by the revenue authority.

(ii) Analyse THREE responsibilities of a tax agent to the client during the tax audit process.

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April 2024

6 Questions

Question 2a

Explain THREE benefits emanating from the recent changes in Tax Dispute Resolution Mechanisms on taxpayer adherence to regulations and the efficiency of administrative processes in Kenya.

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Question 2b

Describe FOUR strategies employed by multinational corporations in mitigating complex tax risks during corporate restructuring across multiple jurisdictions.

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Question 4a

In a tax master class, one of the facilitators noted that “Before accepting a new client in a taxation assignment, tax practitioners should consider whether acceptance of that particular engagement would create any threat to compliance with the requisite fundamental principles”.

In relation to the above statement, propose FOUR factors that a tax practitioner should consider in evaluating new clients before acceptance of a new tax assignment.

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Question 4b

John Pritt, a citizen of Rwanda has received two job offers in Kenya for which he has approached you to advise on which job offer to accept.

Job offer A:

John Pritt would be employed as a finance officer with African Airway Ltd., a regional airline with its head office in Kenya. The offer provided for the following:

Basic salary of Sh.130,000 per month to be increased semi-annually by 10%.
A monthly bonus of 5% of the basic salary to be paid on the ninth day of the following month.
Fuel allowance of Sh.10 per kilometer where he is estimated to be covering 10,000 kilometers in a year, three quarters of which will be on official duties.
He will be provided with free return air ticket worth Sh.16,000 for each travel on 30 June and 31 December each year to visit his family in Rwanda.
The company will provide him with a house whose market rental value is Sh.30,000 per month.
The employer will deduct Sh.5,000 per month as rent. The house will be fully furnished at a cost of Sh.480,000.

Job offer B.

John Pritt would be employed as an accountant by Watts Ltd. The offer provides for:

Basic salary of Sh.145,000 per month and an allowance of Sh.5,000 per month for attending finance committee meetings.
An annual allowance of Sh.150,000 for the purchase of office attire in line with the company’s dress code.
A provision for sending him to their Uganda office on a one month per year job rotation. He will be sent to Uganda in November every year and he will receive his monthly pay as usual. During that month he will attend the finance committee meeting as planned in Kenya, as the company will facilitate him with a return air ticket.
He will be provided with a saloon car costing Sh.2,800,000 of 3000 cc.
The company will cater for his night watchman’s monthly salary of Sh.18,000. His monthly water bills and electricity bills will also be paid by the company.

Required:

(i) Evaluate the two job offers and advise John Pritt on which job offer to accept based on net annual income using the tax rates for the year 2023 as provided in the tax table.

(ii) Advise John Pritt on FOUR conditions that one is required to meet in order to qualify for double taxation relief in Kenya or your country.

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Question 5a

Explain FOUR initiatives undertaken by the revenue authority in your country to entrench ethics and integrity in administration of tax.

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Question 5b

The revenue authority is mandated to actively investigate potential violations of the tax laws and regulations and related financial frauds and schemes.

Required: With reference to the above statement, analyse the procedure followed by the revenue authority tax officers in conducting a particular tax investigation.

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December 2023

3 Questions

Question 5a

In a tax dispute resolution mechanism workshop, one of the facilitators noted that, “there is need for establishing a specialised tax court within the country to handle tax appeals from the Tax Appeals Tribunal”. Justify the above statement, citing THREE benefits that could be derived from establishing a specialised tax court.

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Question 2a

Tax agents play a crucial role in helping micro and small enterprises (MSEs) comply with tax obligations.

In light of the above statement, explain THREE potential areas the revenue authority may collaborate with tax agents to bridge tax gaps in MSEs in your country.

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Question 1a

Assume that you work for a tax consultancy firm. A client, Masterway Ltd., intends to develop a Transfer Pricing Policy document and has approached your firm for advice on information that it should include in the document.

Required:

Advise Masterway Ltd. on FOUR items that should be included in a transfer pricing policy document.

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August 2023

7 Questions

Question 1c

Summarise FOUR signs that may point to tax fraud in a business entity.

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Question 5b

Tax risks are broadly classified into specific and generic categories.

Analyse TWO types of risks in each category.

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Question 5a

Explain THREE reasons why investment allowances as tax incentives have not achieved the intended objectives in your country.

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Question 4a

Assume that your country has continued to face challenges in addressing tax deficits. Over the past few years, the revenue from taxation has not fully met the country’s development needs.

Required:

As a tax expert, advise the revenue authority in your country on FIVE possible reasons for the shortfall in tax collection.

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Question 3a

Evaluate FOUR methods that multinational companies operating in Kenya can use in order to adjust transfer prices for purposes of computing taxable income as provided under the Transfer Pricing Rules (2006).

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Question 2b

Alternative Dispute Resolution (ADR) methods are utilised by revenue authorities to resolve and expedite tax related disputes on a timely basis. While ADR mechanisms present many advantages, they also face certain challenges when applied to tax matters.

Explain SIX challenges faced in the administration of ADR in your country.

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Question 1a

Discuss how the following issues may generate ethical dilemmas to a tax professional:

(i) Conflict of interest.

(ii) Contingent fee tax representations.

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April 2023

4 Questions

Question 1a

Analyse FOUR roles of an arbiter in a tax alternative dispute resolution (ADR) process.

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Question 4a

As a professional tax practitioner undertaking tax advisory for the small and micro enterprises (SME) sector, explain FOUR aspects of compliance with the tax code in your country that constitute the major pain points for the SME sector.

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Question 3a

The tax laws and regulations in most developing countries have been changing in recent years. This rapid change in legislation may expose tax payers to the risk of non-compliance.

Required:

(i) Explain the term “tax health checks”.

(ii) Describe FOUR reasons why businesses should conduct regular tax health checks.

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Question 2a

During the period between 1 July 2015 and 30 June 2020, Chris Alexo earned income of Sh.18,000,000 which he did not declare to the revenue authority. The tax thereon amounted to Sh.6,000,000 with penalties and interest of Sh.1,500,000 and Sh.600,000 respectively. In the year 2021, Chris Alexo applied for relief under the voluntary tax disclosure programme (VTDP) and the approval was done in August the same year. He thereafter paid Sh.3,000,000 to offset the tax due. During the year ended 31 December 2022, Chris Alexo settled Sh.1,500,000 of the principal tax but accrued further penalties of Sh.250,000 and interest of Sh.100,000. He estimates that he can only pay Sh.1,000,000 during the year 2023. This will result into additional penalties and interest of Sh.100,000 and Sh.60,000 respectively.

Required:

Compute the tax, penalties and interest (if any) for the relevant years to be waived or paid by Chris Alexo under the VTDP.

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December 2022

2 Questions

Question 3b

The Commissioner is empowered to cancel or terminate the license of any person acting as a tax agent at any time. Summarise FOUR circumstances under which this may be possible.

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Question 1c

Explain TWO ethical principles governing the services provided by tax practitioners.

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August 2022

3 Questions

Question 1a

With reference to the services provided by tax practitioners, explain the difference between “tax health checks” and “tax audits”, clearly isolating the salient features of each.

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Question 2b

(i) A tax agent is an important stakeholder in the Alternative Dispute Resolution (ADR) process. Analyse the roles of a tax agent in relation to the ADR process.

(ii) Explain the circumstances under which the Commissioner may cancel the license of a tax agent.

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Question 3c

Explain the tax implications of the following:

(i) Where two or more entities enter into a joint venture agreement or partnership.

(ii) Where shareholders are wholly or partly paid in cash for forfeiting their shares in a cessation of business.

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April 2022

2 Questions

Question 4d

Explain the difference between a tax agent and a tax representative.

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Question 1a

The following facts relating to a hypothetical tax case in your country have been presented to you. The case related to the applicability of withholding tax on interest accrued in the audited books of a taxpayer.

1.	Ale Ltd. entered into an agreement with a contractor under which it agreed to pay interest on any contractual fees paid late. A number of payments due to the contractor were delayed and incurred interest. The interest was not actually paid but the obligation to pay was accrued as a liability in the respondent's books.
2.	As interest is a business expense, Ale Ltd. expensed it as a tax deductible item thereby reducing its corporation tax liability. The revenue authority undertook an audit and demanded payment on the withholding tax on the accrued interest. Following the demand, Ale Ltd. filed the matter before a tax tribunal.
3.	The revenue authority claimed that by recognising accrued interest as a liability in its books of account, Ale Ltd. acknowledged that interest was credited to the account of the third party and therefore fell within the definition of the term "paid" under applicable tax laws.
4.	At the tax tribunal, Ale Ltd. presented the following arguments: The term "paid" in tax law can only mean delivery of money and discharge of settlement. Since Ale Ltd. neither settled the outstanding contractual fee nor paid any interest charged, even though the interest was recognised as a liability in its books of account, no withholding tax was due for that transaction. As per tax laws, tax is withheld upon payment of the expenses thus payment is a necessary pre-requisite for withholding tax to apply. The settlement of an obligation may be through receipt of cash, cheque or other mode of settlement or discharge and an accrual is therefore not a discharge of a debt. Payment denotes the discharge of a debt or liability and it was premature for the revenue authority to demand payment of the withholding tax before the actual payment of interest. By doing so, the revenue authority clearly exceeded its powers.

Required:

As a Certified Public Accountant and tax expert, you have been engaged by the revenue authority to counter the arguments by Ale Ltd. for consideration by the Tax Tribunal.

Prepare your professional opinion making reference to the facts above, applicable tax laws and decided tax cases to support your position.

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Pilot December 2021

3 Questions

Question 5c

In case of back duty the tax department will reject the accounts presented to them and will advise the taxpayer to provide another set of accounts prepared by a reputable firm of auditors. Where presentation of accounts is not possible, the taxpayer’s income could be computed through capital statements.

Required:

Explain other circumstances under which capital statements are applicable in computation of income.

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Question 4b(i)

In Kenya, tax agents are individuals or companies that prepare taxes on behalf of the tax payers, they also offers professional assistance to people or companies that do not want to prepare taxes on their own.

In light of the above statement, explain circumstances under which a tax agent’s license may be canceled.

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Question 2a

Under Section 24 of the Income Tax Act, a company is required to adhere to the rules under the shortfall distribution. If a company is unable to pay the required amount, it has to make a representation to the tax department.

In relation to the above provision, explain four factors that must be included in its representation.

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December 2021

4 Questions

Question 5a

As a tax manager at the revenue authority in your country, prepare a brief on the following:

(i) Process of being appointed a tax agent.

(ii) Requirements for recognition as a tax expert by the revenue authority.

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Question 3c

Describe the types ofrisk that require an organisation to develop a tax risk management framework.

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Question 3a

You have been appointed as the first tax consultant of ABC International PLC, a newly incorporated company in your country.

Required:

Draft a letter to the Revenue Authority for income tax registration for ABC International PLC.

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Question 1a

As economies continue to recover from the impact of the COVID-19 pandemic, tax collection in many countries continues to face challenges. This trend has resulted in some revenue authorities resorting to some drastic measures to boost tax revenue.

One recent measure taken is monitoring of social media accounts and postings to assess taxation compliance.

Required:

Justifying your response with practical reasons, argue the case for or against monitoring of social media accounts to assess taxable capacity and compliance. (Note: marks will be awarded for only one position taken).

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September 2021

2 Questions

Question 2a

Discuss the responsibilities of the Senate Budget Committee or its equivalent in public finance management.

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Question 1a

One of the recent trends in the field of taxation is the introduction of digital services tax (DST).

Required:

(i) Explain the meaning and operations of the digital services tax (DST).

(ii) Describe three types of transactions where DST is applicable.

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November 2019

1 Questions

Question 4b

Describe four functions of tax agents.

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May 2018

1 Questions

Question 1d

Summarise six ethical principles that are specifically applicable to a tax practitioner acting on behalf of a client.

(Note: You are not required to discuss the general principles of ethics).

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November 2017

1 Questions

Question 1a

The following extract is from a leading global newspaper on matters of taxation and finance:

Avoiding tax may be legal, but can it ever be ethical?

"Rather than hiding behind the business case for tax avoidance, companies need to be transparent about their tax planning. Avoiding tax and bending the rules of the tax system is not illegal unlike tax evasion; it is operating within the letter, but perhaps not the spirit of the law. Businesses may therefore be complying with the law, but are they acting ethically?".

Required:

Citing four areas, discuss the moral and ethical issues against tax avoidance with specific reference to operations of multinational corporations (MNCs).

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November 2016

1 Questions

Question 5a

The Council of the Institute of Certified Public Accountants of Country X is developing a Code of Ethics to manage the conduct of its Council members.

Required:

Propose provisions for inclusion in the above referenced Code of Ethics to prevent cases of conflict of interest among Council members.

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May 2015

1 Questions

Question 3a

Outline two factors that a tax practitioner should consider in deciding whether to provide oral or written advice to a client.

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Professional practice in taxation

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