ELEMENTS OF TAXATION DECEMBER 2023 PAST PAPER

MONDAY: 4 December 2023. Afternoon Paper. Time Allowed: 2 hours.

This paper is made up of fifty (50) Multiple Choice Questions. Answer ALL questions by indicating the letter (A, B, C or D) that represents the correct answer. Each question is allocated two (2) marks. Do NOT write anything on this paper.

RATES OF TAX (Including wife’s employment, self-employment and professional income rates of tax).

Year of income 2022

1. The following documents are required to accompany a self-assessment return, EXCEPT ________________.

A. A set of audited final accounts
B. Tax computation schedule
C. Documents to support withholding tax
D. List of shareholders (2 marks)

2. Job Mbatha is a trader registered for value added tax (VAT) purpose and dealing with leather products. In December 2022, he imported goods valued at Sh.2,625,000 being cost, insurance and freight excluding import duty and VAT. Import duty rate was 25% during the month while VAT rate was 16%. Calculate the amount of input VAT chargeable on the goods.

A. Sh.525,000
B. Sh.483,000
C. Sh.420,000
D. Sh.453,000 (2 marks)

3. The following are offences under the value added tax (VAT) Act, EXCEPT _____________________.

A. Failure to register when eligible
B. Failure to supply taxable goods
C. Failure to issue a tax invoice
D. Failure to keep proper records (2 marks)

4. When the trader passes on the tax burden to the consumer through a sales transaction, this is known as?

A. Straight shifting
B. Online shifting
C. Backward shifting
D. Forward shifting (2 marks)

5. John Tabachu received the following income and benefits from his employer for the year ended 31 December 2022:

Required:

Calculate John Tabachu’s taxable income for the year ended 31 December 2022.
A. Sh.2,427,000
B. Sh.3,090,000
C. Sh.3,072,000
D. Sh.2,262,000 (2 marks)

6. Noah Mutemi is an employee of Chajoh Ltd. During the year ended 31 December 2022, he contributed Sh.6,000 per month to cater for his life insurance premium. His gross salary was Sh.180,000 per month.

Calculate his tax relief for the year of income 2022.
A. Sh.28,800
B. Sh.60,000
C. Sh.21,600
D. Sh.39,600 (2 marks)

7. Symon Mutua is an employee of Safari Ltd. During the year 2022, he received an annual income of Sh.2,500,000 before housing benefit. He was housed by the employer in a rented house where the employer paid Sh.30,000 per month while the fair market rental value of the house was Sh.45,000 per month. Symon Mutua was deducted Sh.5,000 per month towards the payment of rent.

Calculate Symon Mutua’s housing benefit for the year ended 31 December 2022.

A. Sh.540,000
B. Sh.480,000
C. Sh.315,000
D. Sh.360,000 (2 marks)

8. Mwatu Ltd’s trading profit for the year ended 31 December 2022 has been arrived at after deducting the following items:

11. The following arguments are in favour of introduction of capital gains tax (CGT) in an economy EXCEPT __________________.

A. It ensures that there is equity in taxation
B. It helps in curbing inflation
C. It reduces chances of tax evasion
D. Increases government revenue (2 marks)

12. The following actions are undertaken by the revenue authority to recover overdue tax EXCEPT
__________________.
A. Holding property of the tax payer as security for the unpaid tax
B. Asking the bank to freeze the bank accounts of defaulters
C. Issue of distrain order where the assets of the tax payer are auctioned to recover the tax due and
payable
D. The commissioner can jail the tax payer for the tax due and payable (2 marks)

13. The income of a taxable person can be assessed on another person under the following circumstances EXCEPT__________________.

A. When a taxable person is a minor
B. When a taxable person is insane
C. When a taxable person is deceased
D. When a taxable person is illiterate (2 marks)

14. Salama Ltd. prepares its accounts at the end of every year. The company submitted its tax returns for the year of assessment 2022 on 15 May 2023 showing unpaid tax balance of Sh.78,000. The balance of tax was paid on 31 May 2023 in relation to the return for the year of assessment 2022.

Which of the following statement is NOT true?

A. The company has submitted the tax return within the submission due date
B. The company was late in paying the balance of the tax payable
C. The due date of the payment of the balance of Sh.78,000 is on 30 June 2023
D. The balance of tax payable will attract late payment interest (2 marks)

15. What is the applicable rate for the capital gains tax (CGT) in the year 2023?

A. 5% not final tax
B. 10% final tax
C. 10% not final tax
D. 15% final tax (2 marks)

16. What is the tax position of meals provided to employees by an employer?

A. It is an allowable expense for employer up to Sh.4,000 per month
B. It is a taxable benefit on employee up to Sh.4,000 per month
C. It is a tax-free benefit if provided to all employees
D. It is a tax-free benefit for employee if it does not exceed Sh.4,000 per month (2 marks)

17 Which of the following incomes will NOT be subject to withholding tax in your country?

A. Royalties
B. Dividends
C. Salaries
D. Commissions (2 marks)

18. What percentage is applicable when calculating the housing benefit for agricultural employees residing in the plantation of farm?

A. 5%
B. 10%
C. 15%
D. 20% (2 marks)

19. Which of the following statements BEST describe the difference between taxes and levies?

A. Levies are narrower in scope with specific rate while taxes are broader in scope with different rates
B. Levies are paid in return for a specific service rendered while taxes have nothing specifically
identifiable in return
C. Levies are penalties and fines on taxes not paid while taxes are restrictive and specific
D. Taxes are contestable while levies are not contestable (2 marks)

20. Pay As You Earn (PAYE) is a scheme of taxation where employee’s income is deducted at source by employers and remitted to the revenue authority on or before which date?

A. The 5th day after the end of the month
B. The 9th day after the end of the month
C. The 15th day after the end of the month
D. The 10th day after the end of the month (2 marks)

21. Who among the following qualifies for owner occupied mortgage interest relief?

A. An individual
B. Corporate entity
C. Trust funds
D. A company (2 marks)

22. Which of the following is qualifying interest for tax purposes?

A. Foreign interest
B. Interest from infrastructure bond
C. Interest from retirement schemes
D. Interest from financial institutions (2 marks)

23. A tax regime that allows taxpayers to decide on their chargeable income and tax payable is known as

A. Final assessment
B. Self-assessment
C. Provisional assessment
D. Assessment tax (2 marks)

24. The following are types of taxes:
(i) Income tax
(ii) Capital gains tax
(iii) Corporation tax
(iv) Value added tax

Which of the following are direct taxes?

A. (i), (ii), (iii) and (iv)
B. (i), (ii) and (iii) only
C. (ii) and (iii) only
D. (i) and (iv) only (2 marks)

25. Which of the following is NOT an advantage of indirect taxes?

A. Can be used to control inflation
B. Can be used to protect local industries
C. Have a wider coverage and can reach a large part of population
D. Are equitable since the rich pay more tax than the poor (2 marks)

26. How much is the allowable deduction against employment income in relation to contributions to a registered pension scheme?

A. Sh.240,000 per annum
B. Sh.300,000 per annum
C. Sh.96,000 per annum
D. Sh.60,000 per annum (2 marks)

27. Which of the following constitutes taxable business income?

A. Sales proceeds realised from disposal of assets
B. Unrealised foreign exchange gain
C. A reduction in general provision of bad debts
D. Realised foreign exchange gain (2 marks)

28. Which of the following is NOT an advantage of installment tax?

A. The taxpayer does not suffer tax penalties and interests
B. The government gets revenue early
C. The government reduces tax evasion
D. The government maximises revenue collection (2 marks)

29. The basic tax point for a supply of a service is when the service is?

A. Rendered
B. Negotiated
C. Inspected
D. Approved (2 marks)

30. Which of the following is a consequence of a trader dealing in Zero rated supplies for value added tax (VAT) purposes?

A. Registration for VAT is not required
B. Filling VAT return is not required
C. A trader cannot deduct input VAT
D. A trader is expected to file VAT return (2 marks)

31. Which one of the following statements explain the term “progressive tax”?

A. A tax which each individual pays fixed amount in a month or a year
B. This is a tax adjusted in a manner that the rate decreases as income increases
C. Where tax is levied at a flat rate on income earned by a person
D. Where a tax is levied at a graduated scale rate on income earned by a person (2 marks)

32. Which of the following is NOT allowable expense for the purpose of computing capital gain tax (CGT)?

A. Loan interest expenses in acquiring property
B. Legal fees on acquisition of the property
C. Allowance for bad debt
D. Cost of defending the title (2 marks)

33. The commissioner may not accept a late objection EXCEPT when?

A. The taxpayer is undertaking a new capital project
B. The taxpayer has no power supply in his office and thus could not get the notice on time
C. The taxpayer is committed to a new assignment to the extent, he/she cannot handle the tax matters
D. The tax payer was held in a police custody (2 marks)

34. Sapuroh Manufacturers Ltd. commenced its operations on 1 January 2022 after incurring the following expenditure:
Sh.
Perimeter wall 5,600,000
Land                  2,800,000
Processing machinery 2,400,000
Saloon car        3,600,000
Forklift              2,000,000

Required:

Determine the investment allowance due to Sapuroh Manufacturers Ltd. for the year ended 31 December 2022.

A. Sh.5,250,000
B. Sh.4,000,000
C. Sh.6,650,000
D. Sh.8,050,000 (2 marks)

35. Which of the following is a right of a registered person for value added tax (VAT) purposes?

A. To apply for registration as a taxable person
B. To display certificate of registration in a clearly visible place
C. To pay monthly tax when due to the department
D. To request for information from the tax department (2 marks)

36. Which of the following levies/taxes is imposed and collected by the county government?

A. Catering levy
B. Petroleum levy
C. Property rates
D. Stamp duty (2 marks)

37. Which of the following statement is NOT true with regard to investment allowances?

A. They are claimed on capital assets utilised by registered businesses
B. They are claimed at different rate depending on the nature of assets
C. The assets must have been used in the year of income under consideration
D. The investment allowance is computed on reducing balance of the asset (2 marks)

38. Kikapu Manufacturers Ltd. incurred the following capital expenses on 1 January 2022:
Sh.
Tractor        2,180,000
Carpets         60,000
Tuk tuks      420,000
Wheelbarrows 20,000

Compute the investment allowances to be claimed by Kikapu Manufacturers for the year ended 31 December 2022.

A. Sh.595,000
B. Sh.658,000
C. Sh.670,000
D. Sh.550,600 (2 marks)

39. Prestige Milling Ltd. provides for the wear and tear allowance on all its assets. During the year ended 31 December 2022, the company purchased computers and office cabinet for Sh.2,900,000 and Sh.480,000 respectively. What is the investment allowance for the acquired assets for the year ended 31 December 2022?

A. Sh.845,000
B. Sh.870,000
C. Sh.773,000
D. Sh.798,000 (2 marks)

40. The MAIN purpose of levying tax is ____________________________.

A. To decrease inequalities
B. To increase imports
C. To generate public revenue
D. To encourage saving (2 marks)

41. Which of the following DOES NOT constitute the meaning of supply under VAT?

A. Sales proceeds earned upon sale of a product
B. The value of export services
C. Drawings of goods meant for resale by a trader
D. Insurance compensation for loss of a non- current asset (2 marks)

42. The following information SHOULD be contained in a VAT tax invoice except?

A. Name and VAT registration number of the person making supply
B. The serial number and date of the invoice
C. The name of person serving the customer
D. Total value of supplies and total amount of VAT charged (2 marks)

43. Which of the following is NOT a right of the commissioner of VAT?

A. To expect that information obtained in the course of duty by the VAT officers shall be treated in
confidence
B. To demand security from any taxable person for the unpaid tax
C. To retain books of accounts for a period long enough for him to complete his examination
D. To take samples of goods of a taxable person without payment (2 marks)

44. Safari Limited started its food processing operations in year 2021 after incurring various capital expenditures among them a mini bus which was purchased at a cost of Sh.3,120,000. How much investment allowances should the company claim in the year 2022?

A. Sh.780,000
B. Sh.585,000
C. Sh.936,000
D. Sh.390,000 (2 marks)

45. Kiritu Ltd sold goods to Fadeh Ltd. for Sh.21,460,000 inclusive of 16% value added tax. What is the value of output VAT?

A. Sh.3,433,600
B. Sh.2,146,000
C. Sh.2,960,000
D. Sh.21,460,000 (2 marks)

46. Kiatuh Ltd. imported goods in the month of October 2023 valued at Sh.2,100,000 being cost, insurance and freight excluding import duty and VAT. Import duty rate was 20% while VAT rate was at 16% during the month. Determine the amount of VAT chargeable on the goods.

A. Sh.403,200
B. Sh.336,000
C. Sh.420,000
D. Sh.400,440 (2 marks)

47. Which of the following is NOT a specified source of income?

A. Royalties
B. Dividends
C. Rent
D. Lottery (2 marks)

48. Willy Makhoha is a professional accountant who is registered for value added tax (VAT) purposes. He offered book keeping services to local clients amounting to Sh.800,000 exclusive of VAT and audited a company in Uganda for Sh.470,000 exclusive of VAT on the month of February 2023. How much is the output tax for the month of February?

A. Sh.203,200
B. Sh.128,000
C. Sh.75,200
D. Sh.110,000 (2 marks)

49. Which of the following is NOT a statutory deduction?

A. Housing levy
B. Withholding tax
C. National Hospital Insurance Fund
D. Pay as You Earn (2 marks)

50. Alpha Ltd. a resident company made a net profit of Sh.22,000,000 during the year ended 31 December 2022, before deducting investment allowance of Sh.15,600,000 which was agreed with the commissioner of tax.

Determine the tax payable by the company?

A. Sh.5,500,000
B. Sh.6,600,000
C. Sh.1,920,000
D. Sh.6,400,000 (2 marks)

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