KASNEB Advanced Taxation - Question 1c

The following details were obtained from the records of Maendeleo Bank Ltd. for the year ended 31 December 2020: 1.The net loss for the year was Sh.22,16... [Click to view full question and step-by-step solution]

KASNEB Advanced Taxation - Question 2a

A number of countries have enacted legislation on public financial management (PFM) which have their main objects as follows: Provide for the effective manag... [Click to view full question and step-by-step solution]

KASNEB Advanced Taxation - Question 3a

Citing examples, differentiate between a 'tax waiver' and a 'tax amnesty. ... [Click to view full question and step-by-step solution]

Advanced Taxation May 2021 Past Paper & PDF Solutions

1a

Public sector procurement Introduction to Public Financial Management

There are different types of public private partnership (PPP) contracts depending on the type of project, level of risk transfer, investment level and the desired outcome.

Required:

Citing relevant examples, describe four types of public private partnership contracts.

1b

Tax systems and policies

During a conference held by the Organisation for Economic Co-operation and Development (OECD) on policies for rebuilding post covid-19 economies, one speaker noted that "once countries stabilise their fiscal recoveries amid the Corona virus crisis, they should seize the chance to build their economies through taxation policy".

Required:

Evaluate six tax policy measures that developing countries should adopt for rebuilding Post-Covid 19 economies.

1c

Limited companies

The following details were obtained from the records of Maendeleo Bank Ltd. for the year ended 31 December 2020:

1.	The net loss for the year was Sh.22,160,000 after the following had been recorded:
		Sh.
	Income from trading activities of a foreign bank subsidiary	980,000
	Gain on sale of shares	294,000
	Fees and commission income	1,460,500
	Interest from government treasury bills	936,400
	Interest on deposits with other banks	1,740,600
	Interest on loans and advances to customers	12,460,300
	Contributions to deposit protection fund	428,000
	Interest on customer deposits	8,484,000
	Rent and rates	864,000
	Directors emoluments	1,480,000
	Income from foreign exchange dealings	1,243,600
	Depreciation	445,300
	Provision for interest expenses	184,400
	Auditors fees	236,800
	Loss on disposal of collaterals	1,560,000
	Installment tax	724,800
	Installation of a new online banking system	1,820,000
	Staff costs	1,680,000
	Operating lease rentals	268,200
	Capital redemption reserve	920,000
	12% debenture stock	1,200,000
	Purchase of double cabin pickup October 2020	2,400,000
	Profit and loss account	964,000	(Dr)
	Rebate on bills discounted	296,000
2.	Staff costs include:	Sh.
	Provision for salary increase	220,000
	Cost of negotiating loans for staff	140,000
	Senior staff club membership	360,000

3.	The online banking system was installed in May 2020 and it included the cost of computer software of Sh.200,000 and new computers at a cost of Sh.620,000.

Required:

Statement of adjusted taxable income or loss for Maendeleo Bank Ltd. for the year ended 31 December 2020.

2a

Introduction to Public Financial Management

A number of countries have enacted legislation on public financial management (PFM) which have their main objects as follows:

Provide for the effective management of public finances by the national and county governments.
Oversight responsibility of parliament and county assemblies.
Provide for the different responsibilities of government entities and other bodies.

Required:

Discuss the key provisions of the PFM Act, 2012 or equivalent legislation in your country, with regard to regulation of grants administration.

2b

Public Sector Investment and enterprise management

Assume that you are a senior government officer managing public investments. The Cabinet Secretary in your Ministry is set to present a paper to a group of local and international investors on why the government should continue participating in public investments.

The Cabinet Secretary has approached you for input in preparation of the paper for presentation.

Required:

Explain four grounds that you would propose for inclusion in the paper, defending the government's participation in public investments.

2c

Management of Public Debts in both National and County Governments’

Many developing countries have resorted to increased reliance on public debt in order to finance their expenditure. This strategy has however resulted in negative impacts on projected economic growth rates.

Required:

With reference to the above statement, describe the negative implications of increased public debt in financing of recurrent expenditure by a government.

3a

Tax systems and policies

Citing examples, differentiate between a "tax waiver" and a "tax amnesty.

3b

Value added tax administration

Dera Suppliers Limited deals in both taxable and non-taxable supplies.

The following transactions were extracted from the company's records for the month of September 2020:

	Sh.
Purchases from local market	912,000
Sales to local market	1,710,000
Imports (exclusive of customs duty)	600,000
Export sales - South Africa	700,000
Export sales - Nigeria	350,000
Purchase of lubricants	456,000
Restaurant services paid	63,840
Tax consultancy fees	45,600
Printing and stationery	17,100
Electricity bills paid	31,920
Exempt sales	480.000
Ambulance services	20,000
Postage services	8,000
Audit fees	68.400

Additional information:

Sales to the local market include goods supplied to Marine Fisheries and Fish Processors Ltd. for Sh.114,000.
Goods purchased at standard rate could not be directly identified from exempt sales.
The company received debit notes and credit notes of Sh.22,800 and Sh.36,480 respectively from suppliers.
The customs duty for imported goods was at 20%.
The company issued debit notes of Sh.74,100 in respect to sales at standard rate.
Sales and purchases to and from the local market were inclusive of VAT at the rate of 14% plus other transactions where applicable
A debtor of goods valued at Sh.28,500 was declared bankrupt and a debt relief waiver granted. Note: Assume transactions are quoted as inclusive of VAT at the rate of 14%, unless otherwise specified.

Required:

Indicating any non-deductible input-tax and exempt supplies, compute:

(i) Total input tax.

(ii) Total output tax.

(iii) Deductible input tax.

(iv) Value added tax payable or refundable.

3c

Taxation of cross border activities

Ali Salama is a resident tax payer in Kenya. During the year of income 2020, he had Sh.4,380,000 from employment in Kenya. He had also received Sh.480,000 from the United Kingdom (UK), which has a double taxation relief treaty with Kenya. Tax deducted in UK was equivalent to Sh.80,000.

Required:

(i) Double taxation relief in Kenya.

(ii) Tax payable in Kenya by Mr. Ali Salama.

4a

Taxation of cross border activities

Discuss the factors that may have inhibited the full integration of the customs union in your regional trading block.

4b

Limited companies

Jamji Manufacturers Ltd. presented the following statement of profit and loss and other comprehensive income for the year ended 31 December 2020:

	Sh. "000"	Sh. "000"
Turnover		384,900
Cost of sales		\(\underline{(98,200)}\)
Gross profit		286,700
Other incomes:
Gain on foreign exchange transactions		42,600
Capital gain on sale of motor vehicle		14,200
Refund of import duty		8,400
Investment income		12,000
		\(\overline{363,900}\)
Less expenses:
Purchase of copyright	24,800
Design of company website	1,200
Directors fees	4,600
Donations to charitable institutions	200
Depreciation expense	1,640
Advertisement	450
Professional fees	448
General expenses	3,640
Legal costs	1,840
Loan repayment	312
Provision for bad debts	142
Impairment loss of a building	280	(39,552)
Net profit		324,348

Additional information:

1.	On 1 July 2020, the company acquired Jilo Ltd., a manufacturing company for Sh.56,000,000 and took over all assets and liabilities, which included;

1.	Assets	Sh."000"
	Factory building	14,800
	Furniture and fittings	1,400
	Processing machinery	8,600
	Lorry (4 tonnes)	1,500
	Computers and printers	600
	Delivery van	840
	Liabilities:
	15% bank loan	6,000
	Trade payables	1,720
	Bank overdraft	1,480

	Jilo Ltd. had operated for only 6 months and had not claimed any investment allowances before it was closed down by the Environmental Authority.
2.	Turnover includes goods sold to the company's branch of Sh.72,000,000. It was established that at the end of the accounting period, 20% of these goods had not been sold by the branch.

3.	Professional fees included:	Sh."000"
	Management fees	280
	Tax consultancy fees	148
	Audit fees	252
	Preparing of tender documents	185
	Environmental assessment fees	360
4.	General expenses imcluded:	Sh."000"
	Installation of Neon signs	420
	Car grant to a director	1,800
	Partition of an office block	560
	Directors Christmas party	240
	Branch closure costs	180
	Repayment of hire purchase loan	120
5.	Legal costs comprised:	Sh."000"
	Drafting sale agreement between the company and Jilo Ltd.	458
	Defending a company against breach of contract	386
	Negotiating a bank loan	168
	Preparing copyright documents	172
	Drafting lease agreements (50 years)	656

6.	Provisión for bad debts include 15% of debts amounting to Sh.600,000 from a company which was declared irrecoverable.
7.	The corporate tax rate during the year was 25%.
Required:
(i)	A statement of adjusted taxable profit or loss for the year ended 31 December 2020.
(ii)	Tax liability and the instalments for the year 2020, assuming the actual profits were made.

5a

Tax investigations Taxation of cross border activities

The Tax Authority in your country has appointed you as a tax auditor for digital services in Abacus Ltd.

Describe three specific operational aspects in Abacus Ltd. that would constitute evidence of existence of digital services in the company.

5b

Taxation of cross border activities

Safari Aviators Ltd. is an air transport company registered in the United Kingdom. On their scheduled flights to East Africa, the company's planes land in Nairobi to connect passengers to other destinations in Africa. Ticketing and other transactions are done through an airline agent in Nairobi, Kenya, who would sell tickets and meet other necessary obligations on behalf of Safari Aviators Ltd.

The agent sold Sh.12,690,000 worth of tickets on behalf of the company in year 2020. The following expenses were incurred in carrying out airline operations in Kenya.

		Sh.
•	Salaries for security officers	1,480,000
•	Furniture for Agency offices	240,000
•	Trade subscriptions	96,000
•	Computers	180,000
•	Purchase of Aircraft (UK) cost	126,000,000
•	Jet fuel	4,900,000
•	Covid-19 tests for staff members	148,000
•	Upgrading Agency website	60,000
•	Airline Authority clearance fees	360,000
•	Purchase of saloon car	3,500,000

Additional information:

1. 15% of ticket sales are allowed annually by the Tax Authority in UK to cover for depreciation of other office equipment.

2. 2% of total ticket sales are allowed annually to cover head office expenses relating to the agency.

3. Operating expenses for the agency are allowed in full.

4. 5% of the investment allowance is allowable to the agent for tax purposes on investment in aircrafts.

Required:

(i) A statement of adjusted taxable income or loss for the year ended 31 December 2020.

(ii) Comment on any further information you may seek from the airline agency to facilitate accuracy of tax liability.

5c

Tax planning Tax systems and policies

Explain two ways through which proper tax planning may contribute to economic stability of a country.

May 2021

Download Complete Period

Questions

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?