a) With reference to Sections 46 and 47 of the Income Tax Act (Cap 470), explain how the incomes of the following persons are assessed for tax.

i.Incapacitated persons
ii.Non resident persons

b) Mr. Dan Mbazo, a citizen of Zambia is employed by Southnet International Ltd, a company based in Lusaka Zambia. Southnet International Ltd opened a branch in Nairobi Kenya on 1 January 2004 and posted Mr. Mbazo as the branch operation manager on the same date.

The following information relates to Mr. Mbazo’s employment for the year ended 31 December 2004 (All amounts are stated in Kenya Shillings (Kshs))

1.His basic pay commencing 1 January 2004 was Sh.200,000 per month
2.He was booked by the employer in a hotel for the month of January pending the availability of a suitable residential house. The employer paid Sh.50,000 to the hotel for this accommodation and meals.
3.On 1 February, he rented a house in a Nairobi suburb for a monthly rent of Sh.35,000. It is the employer’s policy to reimburse half of the rent paid by an employee.
4.In March, he relocated his family from Lusaka to Nairobi. The employer paid Ksh25,000 for the air tickets used by the family.
5.Commencing 1 July, he received a monthly entertainment allowance of Ksh.12,000 from the employer which he spent on visiting local tourist sites.
6.In August, passages of Ksh110,000 were paid by the employer for Mr. Mbazo to attend a two week seminar in Cape Town, South Africa. While in South, he purchased a motor vehicle costing Sh.2,000,000 for his use in Kenya. The total fuel and maintenance costs of the motor vehicle to 31 December 2004 amounted to Ksh.120,000. Three quarters of the vehicle usage related to official duties.
7.On 1 October the employer effected the following changes on Mr. Mbazo’s basic pay and benefits with effect from 1 October 2004:

•His basic pay was increased by twenty five per cent
•A comprehensive insurance cover for his motor vehicles for an annual premium of Ksh.80,000 payable on 1 October each year
•A medical cover for self and family to a maximum of Ksh.2,000,000. Monthly contributions by the employer to the scheme amounted to Ksh8,000
8. On 30 December he received a cheque of Ksh.150,000 from the employer for being the best foreign based employee for the year ended 31 December 2004
9. The PAYE remitted from his pay for the year ended 31 December 2004 amounted to Ksh.200,000.

Required:

I. Comment on the residence of Mr. Mbazo (for tax purposes) for the year ended 31 December 2004
(2 marks)
Ii. Calculate the taxable income of Mr. Mbazo for the year ended 31 December 2004 (12 marks)

Answer rating: 100% (QA)

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