Explain the tax implications of the â??most favoured nation statusâ?. (4 marks)(b) You have been ap

Explain the tax implications of the “most favoured nation statusâ€. (4 marks)(b) You have been approached by Mr. Kenneth Kamau, seeking your assistance in the computation of his tax liability for the year ended 31 December 2001. he has provided you with the following information:Mr. Kamau works for Chip.com Ltd. as the technical director. During the year ended 31 December 2001, he received the following emoluments:1.A salary of Sh.600,000 per month2.Dividends amounting to Sh.360,000 (gross). He holds 30% of the shares in the company.3.He is housed by the company in a house whose market rental value is Sh.180,000 per month. The employer has rented the house from an estate agent.4.He receives director’s fees amounting to Sh.90,000 per month.5.He has free use of a company vehicle since at times he works late. The vehicle, with an engine capacity of 2200cc had cost Sh.3,600,000 in the year 2000.6.On 1 January 2001, Mr. Kamau obtained a loan of Sh.10,000,000 from the company at an interest rate of 5% per annum repayable in 10 years.7.Mr. Kamau has a small scale horticultural farm in Nanyuki. The profits/losses from the farm for the last three years were as follows:Year ended 31 December 1999 –Year ended 31 December 2000 –Year ended 31 December 2001 –In each of the three years, the family consume vegetables from the farm valued at kshs. 75,000 and converted into their own use flowers valued at Kshs. 130,000Loss sh.960,000Profit sh.120,000Profit Sh.450,00o8.Mrs. Kamau is a nurse and is employed by Chip.com Ltd. at a salary of Sh.85,000 per month (PAYE deducted per month is Sh.20,000).Mrs. Kamau also owns rental premises in Nakuru. The following were the details of income and expenses for the year of income 2001:Gross rentLess: Caretaker’s salary Painting Repairs Interest on Mortgage Renovations after which rent was increased Net income Sh.1,120,000 (300,000) (20,000) (60,000) (240,000) (400,000) 100,0009.Mrs. Kamau is a member of a registered Individual Retirement Benefits Scheme managed by the Insurance Company of Africa. She contributes sh.20,000 every month towards the scheme.Required:Compute the taxable income for Mr. Kamau for the year ended 31 December 2001. ( 8 marks)Determine tax payable and specify when it is to be paid. ( 2 marks)Is Mr. Kamau to blame for the PAYE not deducted from his emoluments? Briefly explain. ( 1 mark)Assuming that the market rate of interest for January 2001 was 10% per annum. Compute the fringe benefit tax (FBT) payable on Mr. Kamau’s loan. When would the FBT be paid to the Commissioner of Income Tax? ( 3 marks)Comment on the tax implications of Mrs. Kamau’s contributions to an Individual Retirement Benefit Scheme. ( 2 marks)(Total: 20 marks)

 

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