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DAC 212 :PRINCIPLES OF TAXATION

REVISION QUESTIONS
TOPICS 1-4
1. Distinguish between "degressive taxes" and "regressive taxes".
2. Distinguish between a "single tax system" and a "multiple tax system".

3. Explain four reasons why a country might prefer a multiple tax system over a single tax system

4. Explain the term "set-off tax" as used in taxation.

5. Outline five causes of tax evasion in developing countries.

6. One of the facilitators in an East African Community tax seminar commented that "there are diverse factors that
influence taxable capacity in various countries". Justify the facilitator's comment by discussing four factors that
influence taxable capacity in your country.

7. Discuss four factors that influence tax shifting in an economy.

8. Outline four sources of revenue for counties

9. Argue six cases against indirect taxes imposed in your country

10. Discuss four arguments in favour of progressive taxes in a country.

11. Explain the role of the Kenya revenue authority (KRA)

12. Explain the tax position of a resident individual with respect to the following:
(i) Royalty income.
(ii) Loan received from an employer at an interest rate below the market interest rate.
13. Discuss the relevance of the concept of ‘’residence’’ in the determination of tax liabilities for both an individual
and a body corporate.
14. Highlight three circumstances under which:
i)The income of a taxable person is assessed on another person.
ii)A married woman might be called upon to bear a tax burden.

15. Mr. Onyango is employed as a senior manager with Brook Enterprises Ltd. He holds 18% of the company's
controlling interest.The following details relate to Mr. Makali for the year ended 31 December 2022.

i. Basic salary Sh.82, 000 per month (PAYE Sh. 18,400 per month).
ii. Benefits in kind for the year amounted to Sh.48, 000.
iii. He was provided with a company car of 2000 cc whose cost was Sh.700, 000. The car was
leased by the company at a monthly rent of Sh.24, 000. He also received a monthly fuel
allowance of Sh.10, 000 for the car.
iv. He was provided with a house by the employer. The house is rented from one of the
company's directors at Sh40, 000 per month. The electricity is supplied from a generator
installed by the company, the monthly expenses in relation to the generator amounted to
Sh.30, 000.
v. On 1 May 2022, he moved to his own house which he had constructed through a 12%
mortgage loan of Sh.2, 000,000. The loan had been obtained from National Housing
Corporation on 1 October 2021.
vi. He is a member of a registered pension scheme where he contributes Sh.18, 000 per month
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with the employer contributing an equal amount for him.

vii. On 1October 2022, he secured an education insurance policy for his child at an
annual premium of Sh.72, 000 payable by the company.
viii. He was out of work station for 5 days for which he was paid per diem of Sh.4, 600 per day.

Required:
a) Total taxable income of Mr Onyango for the year ended 31 December 2022.
b) Tax due on the taxable income calculated in ( (a) above.
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16. John was employed by Metal Max Ltd. as a human resource manager with effect from 1
January 2022. He reported the following incomes for the year ended 31 December 2022
a. Basic salary Sh. 80,000 per month (PAYE Sh. 12,000 per month).
b. The employer paid his annual life insurance premiums at an amount equivalent to 5% of
his annual basic salary.
c. The employer provided him with a house whose market rental value was Sh. 50,000 per
month.The employer deducted 5% of his basic salary per month as nominal rent.
d. Education fees for his two children amounting to Sh. 180,000 were paid by the employer
during the year.This amount was charged in the employer's income statement.
e. The employer reimbursed him for all out of pocket expenses incurred on the official use of
his personal car.
f. In the year 2022, the amount reimbursed amounted to Sh. 180,000. He had purchased the
car in the year 2020 at a cost of Sh. 900,000. The car had an engine capacity of 1600 cc.
g. He contributed Sh. 28,000 per month to a registered pension scheme. The employer
contributed Sh. 18,000 per month for him to the same scheme.
h. He received entertainment allowance amounting to Sh. 40,000. He utilized the amount in
celebrating his birthday together with his family.
i. He received a year-end bonus payable to executive staff of Sh. 80,000
j. The employer provided him with electricity, water, telephone and a cook at a cost of Sh.
15.000, Sh. 9,000, Sh.60,000 and Sh. 18,000 per month respectively.
k. During the year ,John was declared the best employee and the employer paid him a
reward of Sh. 100,000.
l. He received medical benefits amounting to Sh. 420,000 from the employer. The company
has a medical scheme for all staff members.

Required:
Compute the following for the year ended 31 December 2022:
a)Taxable income for John.
b)Tax liability (if any) on the income in (i) above.

17. Jeff is an employee of Tala Ltd. He has provided the following details relating to his employment
income and other benefits for the year ended 31 December 2011.

a. Monthly salary Sh 124,000 (PAYE tax Sh34,100)

b. School fees for his daughter amounting to Sh.64,000 was paid by the employer and
deducted as an expense
c. His monthly salary was increased on 1 December 2022, by Sh.20,000 and backdated
to 1September 2022.
d. The company provided him with airtime worth Sh.5,000 per month. It was estimated that
50% of his calls were non-business related.
e. Passages to facilitate his family to move from South Africa to Kenya amounted to
Sh.150,000
f. A fully furnished house whose cost of furniture was Sh.240,000.
g. A life insurance cover whose annual Insurance premium amounted to Sh.72,000.
h. A motor vehicle (2000 cc) whose cost was Sh.600,000 at the time of purchase on 1
January 2018.
i. Jeff controls 15% of the share capital of the company. The company gave the wife
free gifts valued at Sh.25,000 during the end of year party.
j. He is a member of the company's registered pension scheme where he contributes 20% of
his basic salary. The employer contributes an equal amount.
k. The company gave Jeff a loan of Sh.5,000,000 at an interest rate of 4% per annum. The
market interest rate is 9% per annum.
l. The company paid medical bills amounting to Sh.1,200,000 following hospitalisation of
his son.
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Required:
Compute the following for the year ended 31 December 20 22:
i)Taxable income for AbiudKageni.
ii)Tax liability (if any) on the income in (c) (i) above.
iii)Fringe benefit tax.
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18. Alex is employed by Ziada Ltd. as a sales manager. He has provided the following information
relating to his income for the year ended 31 December 2022:
1. His monthly basic salary was Sh.50,000 (pay as you earn (PAYE) Sh.14,800 per month).
2. He was also entitled to a commission of 5% based on average monthly sales made in a
year. The average sales per month during the year amounted to Sh.l04,400 inclusive
of value added tax (VAT) at the rate of 16%.
3. He lived in a company house until 30 September 2022 and paid a nominal rent of Sh.5,000
for the house. The market rental value of houses in the estate was Sh.50,000 per month.
4. He was provided with a company car of 2400 cc whose cost at the time of purchase was
Sh.800,000. The car was purchased in year 2018. Depreciation on motor vehicles is at the
rate of 20% per annum on cost
5. The education fees for his two daughters amounting to Sh360,000 were paid by the
company The company had not debited the fees in the statement of comprehensive
income for the year ended 31 December 2022
6. He purchased a house and moved in on 1 October 2022, through a mortgage loan of
Sh.5,000,000 at an interest rate of 12% per annum. The initial deposit of Sh.1,400,000 was
advanced to him by the company at an interest rate of 8% per annum. The market interest
rate during the period was 10% per annum.
7. He has a life assurance policy where the company paid Sh.10,000 for him per month.
8. He holds 12% of the share capital of Ziada Ltd. while his wife controls 6% of the
share capital in the company
9. Both Mr Alex and the wife contributed to a registered pension scheme Sh.36,000 per
month while the employer contributed an equal amount.
10. He received a monthly pension of Sh .25,000 from a previous employer.

Required:

(i) Compute for Mr Alex for the year ended 31 December 2022 Taxable income and Tax
liability.
(ii) Comment on any information not used m your computations under (i)above.
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