(b) Alex Kipkoech is employed by Zintac Ltd. as a salesman. He provided the following
information relating to his income and that of his wife for the year ended 31 December
1. His monthly basic salary is Sh. 60,000 (PAYE Sh. 15,000 pe
Anga Ltd. provided a company house to Mrs. Ongera in South B where rent of similar
houses was Sh.20,000 per month.
Mrs. Ongera works over-time and her over-time income averages Sh.10,000 per
Mrs. Ongera enjoyed medical benefit of Sh.160,000 during
(d) The issuance of debentures or redeemable shares for free or for part payment in the
care of a body corporate.
Classification of Dividends
Dividends are classified into two, namely;
Non qualifying dividend
Payment to directors pension scheme 160,000
Compensation to a former director for
wrongful termination contract
3. Interest expenses
Interest on bank overdraft 151,200
Interest on loan from a foreign bank 50,400
Interest on loan to p
1. Included in sales revenue were goods valued at Sh. 150,000 consumed by the partners.
These goods had cost Sh. 80,000 which was included in cost of sales.
2. Insurance premiums include Sh. 70,000
qualifies for wear and tear deduction.
r) Mortgage interest (also called owner occupier interest) to the maximum of Sh150,000
w.e.f. 1.1.2006. This is the interest on loan obtained for purchase or improvement of a
residential house. For the interest to be
b) The amount of personal expenditure incurred by any individual in the maintenance of
himself, his family, or for domestic purpose. With effect from 1.6.'91, the disallowed
i) entertainment expenses for personal purposes;
7) Other considerations
Taxpayers standard of living/lifestyle/cost of living, property and assets alienated
to other persons.
Any remittances abroad
Marital status or status in society
Determine the capital at the begin
Please note that for petroleum companies, tax deficits in the year the petroleum company
closes its business is carried backwards for a maximum of three years.
TAXATION OF INCOMES OF PERSONS
8 8 TAXATION
2.14.1 TAX COMPUTATIONS
The income tax co
WEIGHT v SALMON
An employee of a company was given the privilege of obtaining unissued shares at value, which
was less than the prevailing market value.
Although the employee did not sell any of the shares, there was no restriction to do so if he
1 All items of income which are exempt, not taxable
or are taxable separately as specified sources of
incomelist the items. (XX)
2 All allowable items of expenditure which have been
omitted in arriving at the net profit or loss
list the items (XX
Specify Persons liable to Tax.
Discuss the treatment of tax deficits under the Income Tax Act
Differentiate between Low interest benefit and fringe benefit
Taxable Income for the year ended 31.12.2008
Net profit/(loss) as per the accounts 35,000
Add back: Disallowable expenses (Note 1)
Bicycle - capital expenditure 3,500
Alimony - personal expenditure 2,400
Depreciation - not allowable given WTD 2,200
Income In Respect Of Any Amount Deemed To Be The
Income Of A
Person Under The Income Tax Or Rules Made Under The
i. All the income from business carried on partly outside and partly inside Kenya is deemed
to be income derived from Kenya, a
Two examples of pre-trading expenses are:
i) In case of a new hotel-the cost of recruiting and training of staff before the hotel opens for
ii) In case of new coffee or tea farmer-of cultivation, fertilizer, and other farm expenses for two
2.12 SPECIFIED SOURCES OF INCOME ARE
1) The right granted to other persons for use or occupation of property e.g. rent and
2) Employment remuneration, e.g. salary, wages, benefits etc.
3) Professional income from practicing profession e.g. lawyer
Income Allocation to Partners
Total Partner A Partner B
Sh Sh Sh
Salary XXX XX XX
Interest on capital XX XX XX
Interest on drawings (X) (X) (X)
Share of profit XX XX XX
XXX XX XX
The figure of the total profits to be shared is derived from the differ
This means interest payable in any manner in respect of any loan, deposit, debt, claim, or other
rights or obligations, e.g. loans by banks and financial institutions, deposits to banks and
financial institutions etc.
Interest is assessed on a
A married woman will be treated as living with her husband and her income taxed on the
a) They are separated under an order of a court or written agreement of separation;
b) They are separated in such circumstances that the separation is l
Expenses or deductions allowed against income
As per section 15 of the Income Tax Act, expenses are either generally allowed against taxable
income or are specifically stated to be allowable against taxable income.
Expenses or deductions generally allowed
2.14 TAXATION OF COMPANIES
Resident body corporates are taxed at the corporation tax rate of 30% while non resident
companies are taxed at 37.5%.
All body corporates incorporated in Kenya are expected to pay instalment tax before the
2.8 EMPLOYMENT INCOME WHICH IS EXEMPTED FROM
The following employment incomes are not taxed as they are exempted
i) Employment income of foreign embassy staff excluding locally recruited staff.
ii) Employment income of Organization
2. Medical Expenses:
Where an employer has a written plan or scheme, or by practice provides free medical
services to all the employees (non-discriminative), the value of such medical expenses
is a non-taxable benefit for employees and whole time service
A whole-time service director who earns basic salary of Sh.56,000 per month plus other benefits
(e.g. Motor Car, House Servants etc.) Sh 9,900 is housed at Runda Estate Nairobi.
Employer pays the Landlord Sh 35,000 per month (i.e. Sh 420,000 per
Mr. Olenkeri had a contract for unspecified term that had no provision for payment of
compensation upon termination of employment. The contract is terminated on 31st Dec 2006 and
Sh 1.5 million is compensation. Immediately before terminatio
Compensation for termination of employment
This is compensation for termination of an employment contract. An amount received as
compensation for termination of a contract of service whether or not provision is made in the
contract for payment of that com
Commissioners prescribed benefit rates
Services Monthly rates Annual rates
(i) Electricity (Communal or from a generator) 1,500 18,000
(ii) Water (Communal or from a borehole) 500 6,000
(iii) Provision of furniture (1% of cost to employer)
Presumptive income from some agricultural produce
As stated earlier, the gross sale amounts of maize, wheat, barley, rice, sugar cane, pyrethrum,
tobacco leaf, tea leaf, coffee, raw cashew nuts, pigs, fresh milk, raw cotton, hides and skins, are
2) Non-cash Employment Income will include:
a) The benefit, advantage, or facility arising from employment. These are taxed if they
aggregate (total) in value to (Sh 36,000) or more in a year of income.
The benefits that are taxed are:
(i) Facilities e.g.
(a) Qualifying interest in respect of Housing Bonds is limited to Sh 300,000 per year.
(b) Withholding tax on interest income received by a resident individual from the following
sources is final:
Banks or financial institutions licensed under the