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CPA Public Finance and Taxation – August 2026 Past Paper & Answers

Unit: Public Finance and Taxation

17 Questions

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Download CPA Public Finance and Taxation August 2026 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.

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1a

Procurement in public entities

(a) A county referral hospital intends to procure laboratory reagents through open tendering for the financial year 2026/2027. The procurement function has prepared the tender documents and the accounting officer has authorised invitation to tender.

Required:

Outline FOUR steps in the tendering process that should be followed by the procuring function.

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1b

Introduction to Public Financial Management

(b) The County Treasury is preparing quarterly cash flow projections to support implementation of approved budget estimates by county departments.

Required:

Explain THREE controls that the County Treasury should apply to ensure that the cash flow projections are credible and support lawful budget execution.

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1c

Relationship between National and County Governments on budget and economic matters

(c) During review of the formula for allocating revenue among county governments, several counties claim that the formula does not adequately reflect expenditure needs and fiscal effort.

Required:

Assess THREE factors that should be considered in sharing revenue among county governments.

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1d

The County Government of Lomeni prepared the following revenue estimates for the financial year 2026/2027:

• Equitable share from the National Government	Sh.6,240 million
• Conditional health grant	Sh.420 million
• Property rates	Sh.310 million
• Single business permits	Sh.185 million
• Parking fees	Sh.95 million
• Market fees	Sh.70 million

Required:

Compute total estimated receipts, own-source revenue and the own-source revenue percentage.

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2a

Administration of Income Tax and Tax Procedures

(a) Highlight THREE conditions that should be satisfied before the Commissioner issues a tax compliance certificate to a taxpayer.

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2b

Administration of Income Tax and Tax Procedures Administration of Value Added Tax (VAT)

(b) With reference to tax administration, explain TWO obligations imposed on a taxpayer who is required to issue electronic tax invoices.

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2c

Nancy Kendi is employed by Tujenge Analytics Ltd. as a regional strategy manager. The following information

relates to her income for the year ended 31 December 2025:

Basic salary: Sh.320,000 per month. PAYE deducted by the employer was Sh.91,000 per month.
Acting allowance of Sh.30,000 per month was paid from 1 May 2025 to 31 December 2025.
A performance bonus of Sh.180,000 was paid on 30 September 2025.
The employer paid school fees of Sh.240,000 for her child. The amount was not taxed through the payroll.The employer deducted the amount as allowable expense while computing business taxable income.
She was provided with an unfurnished house rented by the employer at Sh.80,000 per month, which was equivalent to the fair market value. She contributed Sh.20,000 per month towards rent.
She was provided with a saloon car of 1800 cc throughout the year. The car had cost the employer Sh.2,800,000.
During the year she was away on official duty for 12 nights and received subsistence allowance of Sh.17,000 per night.
She contributed Sh.28,000 per month to a registered pension scheme.
She paid mortgage interest of Sh.420,000 during the year on a loan used to acquire her owner-occupied residential house.
She paid life insurance premiums of Sh.7,500 per month and contributions of Sh.18,000 per month to a post-retirement medical fund.
She benefited from the meals provided at the employer’s canteen amounting to Sh.56,000 during the year.
She was deducted affordable housing levy at the rate of 2.75% and the Social Health Insurance Fund at the rate of 1.5%.

Required:

(i) Compute the total taxable income of Nancy Kendi for the year of income 2025.

(ii) Determine the net tax payable, if any, for the year of income 2025.

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3a

Administration of Value Added Tax (VAT)

(a) Define the term "taxable supply" as used under value added tax.

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3b

Administration of Value Added Tax (VAT)

(b) Explain THREE circumstances under which input tax incurred by a registered person would not be deductible for VAT purposes.

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3c

Taxation of Income

Spike Technical Institute granted an employee a staff loan of Sh.1,800,000 on 1 January 2025 at an interest rate of 5% per annum. The prescribed market interest rate for fringe benefit tax purposes was 13% per annum and the resident corporation tax rate was 30%.

Required:

Compute the fringe benefit tax payable by the employer for the year of income 2025.

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3d

Administration of Value Added Tax (VAT)

Peckers Agro Supplies Ltd. is registered for Value Added Tax (VAT). The following transactions were recorded for the month of June 2026. Unless otherwise stated, amounts are exclusive of VAT:

1. Local standard-rated sales to registered customers: Sh.8,600,000.

2. Credit note issued to a customer in respect of goods returned: Sh.300,000.

3. Debit note issued to a customer for goods undercharged in May 2026: Sh.180,000.

4. Exported agricultural consultancy services to Uganda: Sh.2,400,000.

5. Exempt financial advisory services: Sh.1,200,000.

6. Local purchases of taxable trading goods: Sh.4,500,000.

7. Purchase of a pick-up used solely for taxable deliveries: Sh.2,000,000.

8. Purchase of a saloon car for a director: Sh.3,000,000.

9. Audit fees: Sh.300,000.

10. Staff catering services: Sh.150,000.

11. Electricity for taxable operations: Sh.200,000.

12. Stationery: Sh.120,000.

13. Inputs directly attributable to exempt financial advisory services: Sh.180,000.

14. Office rent relating to both taxable and exempt activities: Sh.600,000.

15. Imported online data-processing services consumed wholly in making exempt financial advisory services: Sh.1,000,000.

Required:

Compute the VAT payable or refundable by Peckers Agro Supplies Ltd. for the month of June 2026.

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4a

Introduction to Taxation

Distinguish between “tax avoidance “and “tax evasion”, giving an example in each case.

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4b

Taxation of Income

The taxable profit of Sunny Components Ltd. for the year ended 31 December 2025 was Sh.15,000,000.

Required:

Compute for the year 2026 each instalment tax payable by the company and state the due dates.

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4c

Investment Allowances/deductions

Sagana Biochem Ltd. Commenced the manufacture of bio-fertilisers on 1 January 2025. The following information relates to the company for the year ended 31 December 2025:

Asset	Cost (Sh.)
Factory building used for manufacture	18,000,000
Processing machinery	9,000,000
Packaging machinery	3,600,000
Quality control machinery used in manufacture	2,400,000
Computer equipment	900,000
Computer software	300,000
Furniture and fittings	600,000
Telecommunication equipment	500,000
Delivery trucks	4,000,000
Commercial showroom	2,000,000
Farm works for a demonstration farm	1,200,000
Right to use fibre optic cable	800,000

Additional information:

Sagana Biochem Ltd. made an accounting profit before tax of Sh.22,500,000 for the year ended 31 December 2025 after charging or crediting the following items:

1. Depreciation: Sh.3,100,000.

2. General bad debts provision: Sh.400,000.

3. Donation to a county bursary fund not approved for tax purposes: Sh.300,000.

4. Tax penalty: Sh.120,000.

5. Net dividends from a resident company: Sh.425,000.

6. Gain on disposal of an old delivery lorry credited to income: Sh.600,000.

7. Accounting loss on disposal of obsolete equipment charged to income: Sh.250,000.

8. Staff training expenses supported by invoices: Sh.480,000.

9. Instalment tax paid during the year: Sh.1,800,000.

10. Withholding tax deducted from consultancy income included in the accounting profit: Sh.90,000.

Required:

(i) Compute investment allowances for Sagana Biochem Ltd. for the year of income 2025. (6 marks)

(ii) Prepare the adjusted taxable profit and corporate tax payable by Sagana Biochem Ltd for the year ended 31 December 2025.

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5a

Administration of Income Tax and Tax Procedures

Enumerate THREE uses of a personal identification number (PIN) in tax administration.

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5b

Taxation of Income

Naserian, Kiplagat and Miano are partners in Narasha Advisory Partners. They share residual profits and losses in the ratio 2:2:1 respectively, after allowing partners’ salaries and interest on capital. In addition, Naserian personally owns residential rental property, outside the partnership, from which she received gross rent of Sh.420,000 per month for the year of income 2025. She is registered under monthly rental income tax. During the year she incurred Repairs and maintenance cost of sh.372,000 for the residential rental property.

The following information relates to the partnership for the year ended 31 December 2025:

1. Accounting profit before tax: Sh.6,240,000.

2. Partners’ salaries deducted in arriving at accounting profit: Naserian Sh.720,000; Kiplagat Sh.600,000;Miano nil.

3. Interest on capital deducted in arriving at accounting profit: Naserian Sh.120,000; Kiplagat Sh.180,000; Miano Sh.150,000.

4. Depreciation deducted in arriving at accounting profit: Sh.500,000.

5. Donation to a community sports day not approved for tax purposes: Sh.240,000.

6. Gross rent from a partnership property credited to profit: Sh.480,000.

7. Net bank interest credited to profit: Sh.136,000 after withholding tax at 15%.

Required:

(i) Compute Naserian's monthly and annual residential rental income tax.

(ii) Compute the adjusted partnership income and allocate it among the partners.

(iii) Kiplagat has been issued with a tax assessment in which he disagrees with the amended assessment issued by the Commissioner and he intends to lodge a notice of objection as provided under the Tax Procedures Act. Advise him on THREE requirements for a valid notice of objection.

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5c

Customs Taxes and Excise Taxes Administration of Value Added Tax (VAT) Taxation of Income Administration of Income Tax and Tax Procedures

During the month of March 2026, Bright Company Ltd. entered into the following transactions:

Assume the applicable rates are as specifically provided in this question:

Imported raw hides with customs value of Sh.4,000,000. Import duty was 10%, import declaration fee was 2.5% and railway development levy was 2% of customs value. VAT was 16% on the customs value plus import duty, import declaration fee and railway development levy.
Imported packaging equipment with customs value of Sh.2,500,000. Import duty was nil, import declaration fee was 2.5% and railway development levy was 2% of customs value. VAT was 16% on the customs value plus import declaration fee and railway development levy.
Paid mobile money transfer charges of Sh.600,000. Excise duty on such charges was 15%.
Paid resident professional fees of Sh.1,200,000 subject to withholding tax at 5%.
Paid management fees of Sh.900,000 to a non-resident person subject to withholding tax at 20%.
Paid commercial rent of Sh.720,000 to a resident landlord subject to withholding tax at 7.5%.
Paid royalties of Sh.500,000 to a resident person subject to withholding tax at 5%.

Required:

Compute the taxes, duties and levies payable or deductible from the above transactions.

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Unlock Solution

CPA: Public Finance and Taxation — August 2026

The computation for this specific sitting involves adjusting the net profit for non-allowable expenses...

Step-by-Step Workings:

Net Profit1,800

Add: Non-Deductible13,000

Adjusted Profit14,800

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