Lesson-One----------------------------------------- 13

REINFORCING-QUESTIONS
QUESTION-ONE
What-factors-should-a-country-take-into-account-in-designing-its-tax-policy.-Is-it-possible-to-accommodate-all-
the-factors?

QUESTION-TWO
Argue-the-case-for-and-against-the-principle-of-progression-in-a-system-of-direct-taxation.

QUESTION-THREE
Discuss-the-advantages-and-disadvantages-of-direct-as-opposed-to-indirect-taxation,-explaining-and-
illustrating-the-various-terms-used-in-your-answer.

QUESTION-FOUR
a) Explain-the-role-of-parliament-in-the-budgetary-process.- (5-marks)
b) How-does-a-budget-deficit-arise-and-what-are-its-consequences?- (5-marks)
c) Faced-with-a-budget-deficit:
i. State-how-to-finance-the-deficit.- (5-marks)
ii. Give-two-effects-of-each-alternative-method-of-financing.- (5-marks)
(Total:-20-marks)

CHECK-YOUR-ANSWERS-WITH-THOSE-GIVEN-IN-LESSON-9-OF-THE-STUDY-PACK

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14 -------------------------------------------------------Lesson-Two

LESSON-TWO

TAXABLE-PERSONS,-INCOME,-RATES-OF-TAX-AND-RELIEFS

In-Lesson-One-you-have-learnt-about-the-general-theory-of-taxation-including-the-public-finance,-
Government's-fiscal-measures,-raising-of-public-revenue,-and-the-principles-and-concepts-of-taxation.

You-will-now-learn-about-a-specific-tax-"The-Income-Tax"-or-the-tax-on-income-in-Lessons-Two-to-Six-of-
our-course.-The-income-tax-is-an-example-of-a-direct-tax-charged-on-income-that-a-person-(individual-or-a-
legal-person)-earns-every-year.

INSTRUCTIONS
1. Assigned-Reading:--Read-study-text-given-below.
2. Complete-the-reinforcing-questions-at-the-end-of-the-lesson.
3. Compare-your-answers-to-models-given-in-Lesson-9-of-the-Study-Pack.
4. Study-text

STRATHMORE-UNIVERSITY-●-STUDY-PACK
Taxable-Persons,-Income,-Rates-Of-Tax-And-Reliefs---------------------------------- -------15

DEFINITIONS

Imposition-(charging)-of-income-tax

Income-Tax,-or-the-tax-on-income,-is-charged-on-income-of-a-person-for-each-year-in-accordance-with-
section-3(1)-of-the-Income-tax-Act.-It-is-worth-examining-the-charging-section-in-detail.

S-3(1)’’.....-a-tax-to-be-known-as-income-tax-shall-be-charged-for-each-year-of-income-upon-all-the-income-
of-a-person,-whether-resident-or-non-resident,-which-accrued-in-or-was-derived-from-Kenya.’’

The-words-and-phrases-highlighted-above-are-crucial-in-the-taxation-of-income-and-it-is-important-to-
understand-their-meaning-in-detail.

Year-of-income

Year-of-Income-is-a-period-of-12-months-commencing-1-January-and-ending-on-31-December-in-each-year.-
It-is-the-same-as-calendar-year.

Income-tax-is-charged-for-each-year-of-income.

The-year-of-income-should-be-distinguished-from-the-accounting-year.-There-is-a-date-to-which-accounts-
of-a-business-are-prepared-each-year,-and-this-date-would-indicate-the-accounting-year-end.-The-accounting-
year-ending-on-31-December-would-coincide-with-the-year-of-income.-Other-accounting-year-ends-would-
however-fall-in-a-given-year-of-income-and-the-profit-or-loss-per-the-accounts-would-be-for-that-year-of-
income.---For-example,-an-accounting-date-ended-30-May-1999-would-fall-to-be-treated-as-the-year-of-
Income-1999.

(Taxable)-income

The-Act--does-not-defined-income,-but-taxable-income-is-said-to-include-gains-or-profit-from-various-
sources,-for-example:

business-profits;
employment-salary,-wages,-bonus,-commission-etc;
investment-income-e.g.-interest-and-dividend-income;

(Taxable)-person

A-person-whose-income-is-taxed-is-either:

a) an-individual-i.e.-a-natural-person;-or
b) a-legal-person-e.g.-a-company.-The-company-here-includes-a-Trust,-Co-operative-Society,-Estate,-
Club,-Trade-Association-etc.

A-taxable-person-does-not-include-a-partnership.-A-partnership-is-not-taxed-on-its-income,-but-the-partners-
are-taxed-on-their-share-of-profit-or-loss-from-the-partnership.

Resident-and-non-resident-persons-

There-are-conditions-for-being-a-resident-in-case-of-an-individual-and-also-in-case-of-a-body-of-persons.

a) Resident-in-relation-to-an-individual-means-that-the-individual:
i) has-a-permanent-home-in-Kenya-and-was-present-in-Kenya-for-any-period-during-the-year-of-
income-under-consideration;-or
ii) has-no-permanent-home-on-Kenya-but-was-present-in-Kenya-for-a-period-or-periods-amounting-in-
total-to-183-days-or-more-during-the-year-of-income-under-consideration;-or

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