What are the economic consequences of increasing the Value Added Tax rate to raise additional revenue for the Government? (5 marks)
- Country already in critical external destination situation
- numerous conditions given
- loss of national pride
- External borrowing
Many of the big businesses in Kenya pay all the four types of taxes shown in the table. The Minister for Finance is moving towards creating a “one tax point” system for businesses.
Specify the major advantages likely to be provided by this system. (4 marks)
(Total: 18 marks)
Many flower growers and exporters are unaware of the benefits accruing from registering for VAT and claiming capital allowances available to them under the Income Tax Act. Write brief notes on the benefits arising in the two areas. (5 marks)
- The flower growers and exporters could benefit as follows:
- Exports are zero rated for VAT purposes and thus can claim a refund for input tax
- Exemptions from import duty on machinery, materials and other intermediate inputs – They can claim the following capital allowances:-
Farm works deductions
Diminution in value of farm tools and implements
Wear and Tear allowances on furniture, computers, tractors etc
I.B.D on storage facilities/buildings
List thee circumstances under which:
The income of a taxable person is assessed on another person. (3 marks)
- Deceased person income assed on executors or administrators
- Incapacitated persons and minors – income assessed on guardian or trustee.
- Married women – income not earned at arms length assessed on the husband Non-resident ship – owners – income assed on the captain of the ship
A married woman living with her husband may be called upon to bear the burden of tax.
- Where the husband has been declared bankrupt
- Where the husband is of unsound mind
- Where the husband does not have distrainable goods
- Where the husband does not have any taxable income (wife is the sole bread winner)
- The husband is untraceable or has gone underground.
Briefly describe the treatment of the following classes of taxpayers with regard to Pay As You Earn (PAYE):
Casual workers. (2 marks)
- (i) Casual workers – casual workers who are engaged by the employer for periods less than one month are not taxable. However, if the casual worker is employed regularly he will be taxed.
Taxpayers with multiple sources of income (2 marks)Multiple sources of income. These are taxed on all incomes but granted personal relief only by the “main employer”
What circumstances may trigger a Pay As You Earn (PAYE) audit? (5 marks)
- Salaries and wages figure per the audited accounts is higher or lower than the amounts reflected in the PAYE returns.
- PAYE is usually not paid on time
- Material fluctuations over the months on PAYE payments
- Third party information or complaints
- Non-compliance noted/detected during a normal tax examination be it VAT or Corporate tax examination.
- Off-late KRA is offering rewards to anybody who divulges information that leads to a tax recovery by authorized persons only.
- Newspaper reports
- Court cases
- Construction sites sign boards – This affects mainly contractors and professionals in the construction industry.
- Information emanating from related companies audited
- Cessation of business on a large part of a business
Higher salaries awarded to middle level managers compared to those awarded to their seniors.
- What tax set-offs are available to an individual taxpayer which may reduce the gross tax liability?
- PAYE deducted at source
- Double taxation relief
- Personal relief
- Any installment tax paid
- Withholding tax on non-qualifying dividends and royalties income Tax refunds of previous years of income.
(Total: 20 marks)