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  • Taxation: Dr. Maina N. Justus

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    The document discusses taxation of business income for sole proprietorships, partnerships, and companies. It provides details on how companies are taxed differently since they have a separate legal identity from their owners. The corporate tax rate is 30% for companies incorporated in Kenya and 37.5% for non-resident companies. It also includes a case study on Talasha Limited and requires determining the adjusted taxable profit or loss and corresponding tax based on additional information provided.

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    The document discusses taxation of business income for sole proprietorships, partnerships, and companies. It provides details on how companies are taxed differently since they have a separate legal identity from their owners. The corporate tax rate is 30% for companies incorporated in Kenya and 37.5% for non-resident companies. It also includes a case study on Talasha Limited and requires determining the adjusted taxable profit or loss and corresponding tax based on additional information provided.

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    © All Rights Reserved
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    21 views10 pages

    Taxation: Dr. Maina N. Justus

    Uploaded by

    Skyleen Jacy Vike
    The document discusses taxation of business income for sole proprietorships, partnerships, and companies. It provides details on how companies are taxed differently since they have a separate legal identity from their owners. The corporate tax rate is 30% for companies incorporated in Kenya and 37.5% for non-resident companies. It also includes a case study on Talasha Limited and requires determining the adjusted taxable profit or loss and corresponding tax based on additional information provided.

    Copyright:

    © All Rights Reserved
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    of 10

    Taxation

    Dr. Maina N. Justus


    TAXATION OF BUSINESS INCOME
    Sole proprietorship
    Partnership
    Company
     Company
    An artificial person that has a legal identity.
    It has a separate legal entity whose existence is distinct from that of the owner.
    Therefore, it has a separate taxable capacity and its profits are taxed from its own
    name and not in the owner’s name.

    Where the company derives incomes from other sources besides the principle income, then
    such incomes belong to the company and can be taxed as an aggregate.

    The same rules of ascertaining the taxable income of a sole trader and partnership
    business will be applied.
     However, attention will be paid to few areas like:
    i. Salaries and allowances paid to directors are allowable expenses
    ii.Transactions between the company and directors or shareholders are
    treated as business expenses for tax purposes.

     The corporate tax rate:


     30% for companies incorporated in Kenya
     37.5%. For non-resident.

     A company is resident in the country if


    It was incorporated in Kenya
    Its management and control were exercised in Kenya during the year of
    income
    It has been declared to be a resident by the CS for National treasury
    through a notice in the Kenya gazette.
    Question
    • The management of Talasha limited has presented the following statement of
    comprehensive income for the year ended 31 December 2011.

    Sh'000' Sh'000'
    Sales 41,200
    Less cost of sales
    Opening stock 9,000
    Purchases 11,600
    20,600
    Closing stock (6,200) (14,400)
    Gross profit 26,800
    Other incomes
    Gain on sales of equipment 260
    Interest on savings account (gross) 90
    Refund of VAT 210
    Gain on foreign exchange transactions (realized) 260
    Farming income (gross) 90
    Rental income (gross) 86 996
    Expenditure
    Legal expenses 860
    Goodwill imparement loss 56
    Salaries and wages 4,100
    Bad debts 1,200
    Repsirs to rental properties 110
    NSSF contributions 600
    Advertising 1,300
    Donation to trade associations 90

    Depreciation 290

    Interest on debentures 570

    Interest on bank overdraft 60


    Insurance 136

    Branch closure costs 200

    Dividends paid 1,000

    Purchase of furniture 25 (11,637)

    Net profit 16,159


    Additional information
    1. The closing stock on 31 December 2011 was valued at cost plus markup of 20%
    2. Legal expenses related to:
    Sh. '000'
    Preparation of a MOU 390,000
    Conveyance fees on purchase of land 120,000
    Acquisition of trade mark 10,000
    Settling customers' dispute relating to outstanding debts 200,000
    Acquisition of bank overdraft 80,000
    Preparation of staff employment contract 60,000
    860,000

    3. The directors had withdrawn goods costing sh. 700,000 (selling price sh.
    740,000) for the persons. These goods have been included in both sales and
    purchases for the year ended 31 December 2011.
    4. Salaries and wages included::
    Sh.
    Directors Allowances 2,100,000
    Staff Christmas gifts 900,000
    Golden handshake to a retiring director 1,100,000
    4,100,000

    5. Bad debts include:


    Sh.
    Loan to Directors 1,100,000
    Estimated defaults on trade receivables 900,000
    6. Advertising expenses include sh. 200,000 for a neon sign
    7. 25% of general expenses relate to private expenses
    8. Capital allowances were agreed with the revenue authority at sh. 600,000.
    Required
    i. Adjusted taxable profit or loss for Talasha limited for the year ended 31
    December
    ii.The tax thereon (if any)
    Thank You for Attending
    Dr. Maina N. Justus

    Email: [email protected]

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