KASNEB Public Finance and Taxation - Question 3a

Explain the meaning of the term 'time of supply' in relation to excisable services. ... [Click to view full question and step-by-step solution]

KASNEB Public Finance and Taxation - Question 4b

Argue four cases against indirect taxes imposed in your country. ... [Click to view full question and step-by-step solution]

KASNEB Public Finance and Taxation - Question 5b

Outline four circumstances under which value added tax (VAT) could be refunded. ... [Click to view full question and step-by-step solution]

KASNEB Public Finance and Taxation - Question 5c

Kiwanda Ltd. commenced manufacturing leather bags on 2 January 2015 after incurring the following expenditure: Sh.Factory building5,800,000Processing machine... [Click to view full question and step-by-step solution]

May 2017

Q: KASNEB Public Finance and Taxation - Question 1a

Distinguish between 'division of revenue' and 'allocation of revenue' as used in revenue management at national and county government levels... [Click to view full question and step-by-step solution]

Q: KASNEB Public Finance and Taxation - Question 1c

During a recent seminar on 'overview of public finance and management', a senior National Treasury official remarked that, 'there has been a very low budget ... [Click to view full question and step-by-step solution]

1a

Relationship between National and County Governments on budget and economic matters

Distinguish between "division of revenue" and "allocation of revenue" as used in revenue management at national and county government levels

1b

Oversight Function in Public Finance Management

Outline five roles played by the county head of internal audit services in relation to public finance management

1c

Relationship between National and County Governments on budget and economic matters

During a recent seminar on "overview of public finance and management", a senior National Treasury official remarked that, "there has been a very low budget absorption capacity by the county governments"

In relation to the above statement:

(i) Explain the meaning of "low budget absorption capacity"

(ii) Identify three possible causes of low budget absorption capacity

1d

Relationship between National and County Governments on budget and economic matters

The Commission on Revenue Allocation (CRA) is supposed to ensure equitable sharing of national revenue

Discuss three parameters used by the Commission in sharing revenue among county governments or their equivalent in your country.

2a

Procurement in public entities

Explain the following terms as used under the Public Procurement and Asset Disposal Act. 2015:

(i) Electronic reverse auction

(ii) Framework agreement

2b

Procurement in public entities

According to the Public Procurement and Asset Disposal Act, 2015 the county treasury is required to establish a procurement function.

In relation to the above provision, outline six responsibilities of the county government procurement function

2c

Administration of Value Added Tax (VAT)

John Mpumalanga is a trader registered for value added tax (VAT). He also offers consultancy services for clients at a fee. He has provided you with the following information relating to his business for the month of March 2017:

		Sh.
Consultancy fee:	Local clients	1,587,500
	Clients in the Democratic Republic of Congo	389.375
Sale of goods:	Exports	400,000
	Local market	3,200,000
E-mail and webhosting expenses		92,000
Legal fees incurred		608,000
Import of goods for resale (cost, insurance and freight)		450,000
Consultancy fee: Client with goods on transit		500,000
Photocopying costs		90,000
Audit fee paid		260,000
Purchases:	Zero rated	250,000
	Standard rate	1,900,000
Sales (Exempt)		620,000

Additional information:

1. On the goods imported for resale, John incurred transport cost of Sh.50,000 and repackaging cost of Sh.20,000 before adding a mark-up of 20% and later selling them as part of exports.

2. The exempt sales had been purchased at standard rate and constituted 25% of the batch.

3. On 13 March 2017, a customer owing Sh.45,000 was declared bankrupt.

4. John received credit notes of Sh.25,000 and sent out debit notes of Sh.50,000 during the month.

5. The rate of customs duty was 25%.

All the above transactions are quoted exclusive of VAT at the rate of 16% where applicable.

Required:

Compute the value added tax (VAT) payable by (or refundable to) John Mpumalanga for the month of March 2017.

3a

Customs Taxes and Excise Taxes

Explain the meaning of the term "time of supply" in relation to excisable services.

3b

Customs Taxes and Excise Taxes

Summarise four categories of goods that are subject to customs control as provided in the East African Community Customs Management Act (EACCMA) or equivalent legislation.

3c

Taxation of Income

Bakahari and Kamanda trade as Bakar Associates providing accounting and taxation services. They share profits and losses equally after charging an interest of 10% on capital contributions. The capital contributions were Sh.3,000,000 and Sh.2,500,000 for Bakahari and Kamanda respectively.

The firm's income statement for the year ended 31 December 2016 was as follows:

Income:	Sh.	Sh.
Accounting and advisory fees		2,400,000
Rental property income		380,000
Tax consultancy fee		1,800,000
Profit on sale of old computers		260,000
		4,840,000
Expenses:
Administrative expenses	420,000
Partner's private insurance policies	960,000
Depreciation	140,000
Salaries and wages	850,000
Bad debts written off	260,000
Legal and audit fees	120,000
Computer software	60,000
Rental expenses	90,000
VAT paid	360,000
Office stationery	150,000
General expenses	180,000
Office partitions	82,000	(3,772,000)
Net profit		1,068,000

Additional information:

1	Rental expenses relate to the partnership's rental houses in the city suburb from which the firm earns income.
2	Legal and audit fees include Sh.40,000 as fines paid to the county government for negligence of duty.
3	Salaries and wages include partner's salaries as follows:

		Sh.
	Bakahari	220,000
	Kamanda	130,000
4	Bad debts written off comprised:
		Sh.
	General provision	82,000
	Trade bad debts written off	118,000
	Specific provision for bad debts	60,000
		260,000
5	General expenses comprise:
		Sh.
	Drafting tender documents	50,000
	Purchase of computers	140,000
	Stamp duty on lease agreements (rental premises)	18,000
	Staff catering costs	72,000
		280,000

Required

(i) Adjusted taxable profit or loss for the partnership for the year ended 31 December 2016.

(ii) A schedule showing the distribution of the partner's profit or loss calculated in (c)(i) above.

4a

Administration of Income Tax and Tax Procedures

During a tax seminar, a facilitator noted that "one of the current challenges facing the revenue authority is failure to collect the targeted revenue set out in the national budget"

Summarise four measures undertaken by the revenue authority to enhance revenue collection in your country.

4b

Introduction to Taxation

Argue four cases against indirect taxes imposed in your country.

4c

Taxation of Income

Philip Kitcher is employed as a sales manager by Salama Company Ltd. He has provided the following information relating to his income for the year ended 31 December 2016:

1. Basic salary Sh.250,000 per month (PAYE Sh.38,500 per month).

2. He is housed by the employer in a fully furnished house (cost of furniture Sh.280,000). The market rental value of the house is Sh.45,000 per month.

3. He was provided with a company car, 2200 cc which cost the company Sh.2,000,000 in 2014. It is estimated that 75% of the mileage covered by the car related to official duties.

4. The employer has a medical scheme for top managers. The employer paid a medical bill of Sh.520,000 for Philip's 10 year old daughter during the year.

5. He received 20,000 shares from the company at a price of Sh.30 per share. The par value per share is Sh.32 while the market price at the time was Sh.39 per share.

6. On 1 July 2016, he received a construction mortgage loan of Sh.3,000,000 at an interest rate of 10% per annum from Mjengo Housing Finance Company to construct a residential house. He constructed the residential house and moved in on 1 September 2016.

7. He received a bonus of 3% of his basic pay during the year for exemplary performance.

8. The company paid his son's school fees amounting to Sh.240,000 for the year. This amount was treated as an allowable expense in the employer's books of account.

9. He contributed Sh.32,000 towards a registered pension scheme.

10. On 1 May 2016, he started an auto spares shop. The shop made a net loss of Sh.200,000 during the year. This was after deducting the cost of fixtures Sh.80,000, salary to his son who operated the shop Sh.60,000 and operating expenses Sh.180,000.

11. He earned professional fees of Sh.95,000 (net) from his part-time practice.

Required:

(i) Taxable income of Philip Kitcher for the year ended 31 December 2016.

(ii) Tax liability (if any) from the income computed in (c) (i) above.

5a

Administration of Income Tax and Tax Procedures

The imposition of penalties under various tax legislation is meant to achieye certain objectives.

In relation to the above statement:

(i) Identify two objectives of imposing tax penalties.

(ii) Assess two circumstances under which the imposition of penalties might not achieve the intended objectives.

5b

Administration of Value Added Tax (VAT)

Outline four circumstances under which value added tax (VAT) could be refunded.

5c

Investment Allowances/deductions

Kiwanda Ltd. commenced manufacturing leather bags on 2 January 2015 after incurring the following expenditure:

	Sh.
Factory building	5,800,000
Processing machinery	2,140,000
Computers	480,000
Conveyor belts	300,000
Staff canteen	1,800,000
Delivery vans	5,200,000
Sewerage system	1,600,000
Warehouse	600,000
Heating plant	1,750,000
Sports pavilion	800,000
Loose tools	120,000

The company purchased the following assets on 1 May 2016:

	Sh.
Furniture	280,000
Toyota Land Cruiser (for the Director)	3,200,000
Packaging machine	1,500,000
Saloon car	1,800,000
Boilers	960,000
Yamaha motor cycles	220,000
Scanners	140,000
Wheel barrows	360,000

Additional information:

1. A staff clinic was constructed at the cost of Sh.2,600,000 and utilised with effect from 1 October 2016.

2. One of the delivery vans was involved in an accident on 3 February 2016 and was written off. The insurance company paid Sh.1,400,000 as full compensation on 10 December 2016.

3. A borehole was drilled at a cost of Sh.800,000 and utilised with effect from 1 July 2016.

4. The company constructed a factory extension at a cost of Sh.1,200,000. The extension was put in use on 1 March 2016 after a power generator costing Sh.380,000 was installed.

Required:

Capital allowances due to Kiwanda Ltd. for the year ended 31 December 2015 and 2016.

May 2017

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