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CPA Public Finance and Taxation – August 2025 Past Paper & Answers

Unit: Public Finance and Taxation

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Questions

Download CPA Public Finance and Taxation August 2025 past paper with detailed answers and marking scheme. This paper is based on KASNEB examination standards and is ideal for revision and exam preparation.

Access the full paper online, download the PDF, or study offline. Each question includes step-by-step solutions to help you understand key concepts in Public Finance and Taxation.

Other Public Finance and Taxation Past Papers

1a
Relationship between National and County Governments on budget and economic matters
​​The consolidated fund is the main national government account where public revenue is deposited before being allocated through the budget. However, certain types of money are excluded from the consolidated fund. 

Required: 
Identify FOUR types of funds that are excluded from the consolidated funds.
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1b
Oversight Function in Public Finance Management
​​The controller of budget is responsible for overseeing budget implementation, ensuring that public funds are used lawfully and efficiently and is also mandated to prepare reports in relation to this responsibility. 

Required: 
Outline key reports that are prepared by the controller of budget in your country. 
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1c
Procurement in public entities
​​Analyse conditions to be met by a public entity when using community participation method of procurement as provided under the Public Procurement and Asset Disposal Regulations, 2020.
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1d
Introduction to Public Financial Management
​​Explain responsibilities of the National Treasury in overseeing the management of public finances at the national level in Kenya, as mandated by the Public Finance Management Act, 2012. 
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2a
Public Debt Management
​​The county treasury is required to submit to the county assembly a statement setting out the debt management strategy of the county government on or before 28 February every year. 

Required: 
Highlight FOUR contents of such a statement. 
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2b
Administration of Income Tax and Tax Procedures
​​Summarise FOUR tax matters which might warrant a tax payer to appeal against the commissioner decision to the local committee.
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2c
Taxation of Income
​ ​ ​ ​ ​​Jamlik Wesonga is employed as the Chief Financial Officer of speedway Ltd., a multinational corporation operating in Kenya. During the year ended 31 December 2024, he provided the following details regarding his income:
1.He received a net monthly basic salary of Sh.250,000 after deducting PAYE of Sh.95,000 per month.
2.From 1 January 2024, he was assigned a company vehicle of 3500cc, which the company had purchased in December 2020 at a cost of Sh.5,500,000. However, from 1 August 2024, the company leased a land cruiser of 4500cc for him at a monthly hire charge of Sh.80,000. The leasing company had purchased the land cruiser at a cost of Sh.4,000,000 in the year 2023.
3.He lived in a company provided house, where he paid a nominal rent of Sh.20,000 per month. The employer paid a monthly rent of Sh.90,000 for the house.
4.On 1 September 2024, he bought and moved to his own house financed through a Sh.2,000,000 mortgage loan at an interest rate of 9% per annum. At the end of the year, the employer paid for him Sh.200,000 relating to principal repayment and interest for the year.
5.He was registered for medical scheme and life insurance scheme on 1 August 2024 where the employer paid his annual premiums of Sh.350,000 and Sh.210,000 respectively. The schemes were non discriminatory.
6.He received gross dividend of Sh.150,000 from a listed company and Sh.110,000 from Jijenge Co-operative society.
7.He received entertainment allowance of Sh.180,000 during the year, out of which Sh.100,000 was spent on personal entertainment and the balance for entertaining customers.
8.His wife had invested in foreign securities where she received Sh.90,000 in foreign dividends.
9.He received net rental income of Sh.1,200,000 from his residential property after deducting the following expenses:
• Caretaker salarySh.90,000
• Mortgage interestSh.200,000
• Replacement of wooden doors with steel doorsSh.130,000
• Purchase and installation of CCTV security systemSh.75,000
• DepreciationSh.110,000
10.On 1 July 2024, he was awarded 10,000 share options by his employer at a price of Sh.5 per share, while the market price was Sh.30 per share. The shares had a nominal value of Sh.20,000 per share.
11.He received a loan of Sh.6,000,000 interest free from his employer on 1 July 2024 while the market interest rate was 12% per annum. The commissioner prescribed interest rate was 9% per annum.
12.On 15 December 2024, he was gifted a holiday trip to the Maldives worth Sh.850,000 for exceeding company’s performance targets.
13.He operates a consulting practice on a part-time basis, where he earned a gross revenue of Sh.2,500,000 before deducting the following expenses:
Sh.
• Office rent400,000
• Marketing and travel320,000
• Salaries to staff600,000
• Purchase of office laptops280,000
14.Assume the employer did not deduct the affordable housing levy during the year.

Required: 
(i) Compute the total taxable income of Jamlik Wesonga for the year ended 31 December 2024. 

(ii) Compute the tax payable if any on the income computed in (c) (i) above. 
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3a
Introduction to Taxation
​​Assuming that you have been appointed as a tax consultant for a leading manufacturing company in Kenya that intends to reduce its tax burden through tax planning and lawful tax avoidance measures, explain FOUR tax avoidance strategies that you would advise the company to adopt in compliance with Kenyan tax laws.
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3b
Taxation of Income
​ ​ ​ ​ ​ ​​The following is an income statement of ABC Traders, a partnership business for the year ended 31 December 2024, where the partners Abdi, Baraka and Caleb share profits and losses in the ratio of 2:2:1 respectively:

Sh.“000”Sh.“000”
Sales2,784,000
Foreign exchange gains180,000
Interest income from bank deposits (gross)250,000
Profit from sale of motor vehicles196,000
Input tax refund360,000
Royalty from patents140,000
Insurance compensation for stolen goods90,000
Expenses:
Purchases1,044,000
Purchase of furniture240,000
Legal fees300,000
Rent and rates180,000
Donations to school of blind150,000
Depreciation284,000
Salaries and wages480,000
Purchase of motor vehicles720,000
Purchase of computers450,000
Motor vehicle expenses148,000
General expenses260,000
Tax consultancy fees78,000
Commission to Abdi36,000
Drawings of goods by Baraka100,000(4,490,000)
Net loss(490,000)

Additional information:
1.Legal fees included: Sh.“000”
• Negotiation fees for a bank loan29,000
• Tax appeal expenses15,000
• Debt collection costs20,000
• Conveyance fees for a parcel of land18,000
• Defending the firm against breach of contract28,500
• Court fines  9,200
• Registration of patents36,300
2.Rent and rates include accrued rates for 2023 Sh.40,000,000.
3.General expenses included:Sh.“000”
• Interest on shylock loan28,200
• Partners’ entertainment allowance30,000
• Medical expenses incurred by Caleb24,000
• Purchase of computer software20,000
4.The motor vehicles purchased during the year were partially used for private purposes by Baraka, with estimated private usage at 40%.
5.Purchases of goods are inclusive of value added tax at the rate of 16%.
 
Required: 
(i) Statement of adjusted taxable profit or loss for the year ended 31 December 2024.

(ii) A schedule of allocation of taxable income to the partners for the year of income 2024. 

(iii) Comment on the filing of income tax returns for each partner. 

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4a
Customs Taxes and Excise Taxes
​​Agrotech Ltd. a Kenyan importer has received a shipment of agricultural machinery from Germany, which has arrived at the port of Mombasa.  
 
As the appointed customs clearing agent, explain FOUR essential import documents you would utilise to ensure the shipment is processed and delivered in accordance with the customs laws in Kenya. 
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4b
Taxation of Income
​​Withholding tax is a significant mechanism used by the government to enhance tax compliance and boost revenue collection. However, its implementation faces several challenges. 
 
With reference to the above statement, propose FOUR drawbacks associated with the introduction of withholding tax in your country. 
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4c
Investment Allowances/deductions
​ ​ ​ ​ ​ ​ ​​Brite Ltd. constructed a factory building at a cost of Sh.6,200,000 and commenced production of designed handbags on 5 January 2023. The following additional expenditures were incurred before operations commenced:

AssetCost (Sh.)
Production machinery2,500,000
Office computers520,000
Assembly line belts350,000
Employee cafeteria2,000,000
Two distribution trucks (each Sh.2,800,000)5,600,000
Central heating system1,900,000
Hand tools150,000

On 1 July 2024, the company acquired the following additional assets:
AssetCost (Sh.)
Office furniture320,000
Labelling and selling machine1,700,000
3 Directors saloon cars (each Sh.4,200,000)12,600,000
Barcode scanners160,000
Utility carts400,000

Additional information:
  1. The production machine cost excluded import duty at the rate of 25% a and VAT at the rate of 16%.
  2. One of the distribution trucks was disposed as at Sh.1,500,000 on 7 January 2024. 
  3. The company expanded its production floor at a cost of Sh.1,400,000 and utilised it from 1 May 2024 after installing a backup generator at a cost of Sh.420,000.
  4. A water purification system was installed at a cost of Sh.900,000 and was put into use on 1 August 2024. 
  5. A staff medical centre was built at a cost of Sh.2,800,000 and became operational on 1 November 2024. 

Required: 
Compute the investment allowances due to Brite Ltd. for the years ended 31 December 2023 and 31 December 2024.  
 
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5a
Miscellaneous fees and levies
​​Explain TWO provisions relating to taxation of Betting, Lotteries and Gaming activities.
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5b
Administration of Value Added Tax (VAT)
​​Evaluate THREE differences between zero rated goods and exempt goods.
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5c
Administration of Value Added Tax (VAT)
​ ​ ​ ​ ​ ​ ​​The following transactions were extracted from the books of Pathway Solutions Ltd. a company registered for value added tax (VAT) purposes for the month of May 2025:

May 1:Purchased IT equipment from NextGen Technologies Ltd. on credit worth Sh.2,100,000.
May 2:Sold network servers to Innovate Systems Ltd. on credit for Sh.1,250,000.
May 5:Purchased office furniture worth Sh.850,000 from Elite Furniture Mart.
May 7:Returned office furniture worth Sh.230,000 to Elite Furniture Mart and received a credit note on the same.
May 10:Server with a value of Sh.180,000 was found to be defective and was returned by Innovate Systems Ltd.
May 14:Imported software licences from Germany worth Sh.3,000,000 exclusive of import duty of 25% and VAT at the rate of 16%.
May 17:Sold cloud computing services to Swift Solutions Ltd. for Sh.4,800,000 in cash.
May 20:Paid Sh.210,000 for catering services.
May 22:Exported IT consulting services worth Sh.3,500,000 to a company in Tanzania.
May 26:Paid rent for two months of Sh.150,000 per month.
May 28:Sold IT security systems worth Sh.1,750,000 to Secure Tech Ltd. in cash.
May 30:Paid the following expenses for the month of May 2025:
Sh.
Water bills – County Government50,000
Salaries and wages3,600,000
Telephone bill85,000
Electricity bill
220,000

The above transactions are stated inclusive of value added tax (VAT) at the rate of 16% where applicable, unless otherwise stated. 

Required: 
Compute the VAT payable by or refundable to Pathway Solutions Ltd. for the month of May 2025. 
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