TAXATION

TAXATION

(a)            Write short notes on:

                (i)            Liability of a person in whose name income of another person is assessed.    (3 marks)

                (ii)           Additional tax in event of fraud in relation to a return.                                      (5 marks)

                (iii)          Incidence of taxes on imports and exports.                                                        (6 marks)

ANSWER

(a)         (i)         The income of one person may be assessed on another person e.g in case of a deceased

person, any income at time of death and thereafter not assessed shall be assessed on the executors/administrators of the estate of the deceased.

They would be liable to tax jointly and severally including any penalties arising there from.

(ii)         The additional tax penalty in event of fraud is a penalty of Ksh.400,000 or double the amount of tax evaded (whichever is higher) and/or a 3 year imprisonment.  This is in addition to the normal penalties of 20% of tax due to late payment of tax and 2% p.m interest penalty.

(iii)        -The impact and incidence of tax on imports fall on the importer especially for

imported goods for personal use.

-If for sale the tax can be shifted through the vehicle of price either wholly or partially.

-           For exports, incidence is on the foreign importer (buyer).  Depending on whether t           he demand of export is elastic or inelastic, the exporter can increase selling price to shift the tax burden to the buyer.

(b)        -           The goods withdrawn will be deducted from purchases at Sh.200,000 cost price.

The school fees is a disallowable expense hence added back to reported profits to increase tax liability

The Sh.5M constitute the component of goodwill.  This would not be taxable since it does not arise from trading and it is of capital nature.