PAPER NO. 11 PUBLIC FINANCE AND TAXATION
UNIT DESCRIPTION
This paper is intended to equip the candidate with knowledge, skills and attitudes that will enable him/her to apply public financial management principles, implement public financial management regulations at middle management levels and to prepare non-complex tax computations for individuals and corporates.
LEARNING OUTCOMES
A candidate who passes this paper should be able to:
• Apply public financial management requirements in practice in non-complex environments in both the public and private sectors
• Compute taxes for various individuals and entities
• Apply the written taxation laws in addressing various tax issues
• File tax returns
• Undertake non-complex tax reviews.
CONTENT
1. Introduction to Public Financial Management
1.1 Nature and scope of public finance
1.2 Sources of public finance
1.3 Objectives of the Public Financial Management Act and Financial regulations
1.4 Budget process for national, county and public entities, Development plan preparation, Treasury circulars, Cash flow projections, Budget estimates and revenue raising measures.
1.5 Role of the National Treasury and County Treasuries with respect to the management and control of public finance.
2. Relationship between National and County Governments on budget and economic matters
2.1 The process of sharing revenue between national and county governments and among the county governments: Factors considered and formula used
2.2 Division of revenue bill and county allocation of revenue bill
2.3 The role of the Commission on Revenue on Allocation (COR)
2.4 The role of the Council of Governors in county financial management
2.5 National Government public funds: The Consolidated Fund; The Contingency fund; The Equalisation fund and Other National Government public funds
2.6 County Government public funds; County Revenue Fund; County Government Emergency Funds and other county public funds
2.7 County government revenue sources.
3. Oversight Function in Public Finance Management
3.1 The role of National Assembly: Responsibilities of the National Assembly budget committee in public finance matters
3.2 The role of Senate: Responsibilities of the Senate budget committee in public finance matters
3.3 The role of Parliamentary Budget Office
3.4 The role of Auditor General
3.5 The role of Internal Audit
3.6 Role of Controller of Budget
3.7 The role of public sector accounting standards board
4. Procurement in public entities
4.1 Introduction to Public Procurement and Disposal (PPD) Act
4.2 Procurement guidelines as envisaged by PPD Act
4.3 Procurement process by National, County and other public entities: The role of the National Treasury, Public Procurement Regulatory Authority and Public Procurement Administrative Review Board
4.4 Tendering process and selection of suppliers in public sector
4.5 Concept of e-procurement
5. Public Private Partnerships Arrangements
5.1 Rationale and justification for Public Private Partnerships
5.2 Establishment of Public Private Partnerships (PPP) Unit in the National Treasury
5.3 Contract/project agreements, guidelines and standards
5.4 Composition and role of PPP petition committee
5.5 Establishment and role of PPP project facilitation fund
6. Public Debt Management
6.1 Establishment of debt management office
6.2 Objectives of debt management in public sector
6.3 Sources of public debt in Kenya
6.4 Management of debts by county governments and other public entities
6.5 Role of the Cabinet Secretary of the National Treasury in public debt management
6.6 Measures that can be adopted to reduce public debt
7. Introduction to Taxation
7.1 Definition of Tax, Taxation and Types of taxes in Kenya
7.2 History of taxation
7.3 Classification of taxes; Tax shifting and Factors that determine tax shifting
7.4 Principles of an optimal tax system
7.5 Types of tax systems; Single versus multiple tax systems
7.6 Purposes of taxation/Why the government levy taxes
7.7 Tax evasion and tax avoidance
7.8 Taxable capacity
7.9 Budgetary and Fiscal policies
7.10 The Revenue Authority; Structure, Functions, Large and Medium Taxpayers Office mandate
8. Taxation of Income
8.1 Introduction
8.1.1 Basis of charging tax in Kenya: Section 3 of the Income Tax Act
8.1.2 Concept of residency and Criteria of taxing income in Kenya.
8.1.3 Taxable and non-taxable persons
8.1.4 Specified Sources of income
8.1.5 Incomes exempted from taxation
8.2 Taxation of Employment income
8.2.1 Taxable cash and non-cash benefits/rewards received from employment
8.2.2 Non-taxable cash and non-cash benefits/rewards received from employment
8.2.3 Allowable deductions against employment income
8.2.4 Tax credits (withholding tax, personal and insurance relief, others)
8.2.5 Taxation of lumpsum payment for services rendered and services that would have been rendered; Gratuity, terminal dues, compensation for loss of office.
8.2.6 Operations of PAYE systems: Preparation of PAYE returns, categories of employees, multiple sources of income, irregularly paid employees, casual workers, PAYE audit and triggers
8.2.7 Other Statutory deductions (NSSF and NHIF)
8.2.8 All these should be illustrated with relevant computations including PAYE computations
8.3 Taxation of Business Income
8.3.1 Introduction to taxation of business income including criteria of taxing business income
8.3.2 Income Tax Act provisions on computation of business income
8.3.3 Allowable and disallowable business expenses and taxable business income
8.3.4 Taxable business income and tax payable computations in respect of:
8.3.4.1 Sole proprietorship
8.3.4.2 Partnerships (excluding admissions, retirement of partners and conversions)
8.3.4.3 Incorporated entities (excluding specialised institutions)
8.4 Taxation of rental income and royalties
8.5 Taxation of Farming income
8.6 Taxation of Investment income (Dividend and interest income)
8.7 Turnover tax and Minimal tax
8.8 Taxation of Capital gains
8.9 Taxation of Digital income; digital service tax and Digital service tax agents
8.10 Withholding Tax
8.10.1 Income subject to withholding tax (Dividends, Interest, management and profession fees, royalties)
8.10.2 Withholding Tax Rates on Residents and non-residents
8.10.3 Introduction to Double Tax Agreements and the impact on withholding tax payments
All the above should be illustrated with relevant basic computations.
9. Investment Allowances/deductions
9.1 Introduction to capital allowances and Rationale for capital deductions
9.2 Types of capital allowances; Theory and computations
9.3 Investment deductions; Ordinary manufacturers
9.4 Industrial building deductions
9.5 Wear and tear allowances
9.6 Farm works deductions
9.7 Shipping investment deduction
9.8 Other deductions
All the above should be illustrated with relevant computations
10. Administration of Income Tax and Tax Procedures
10.1 Registration and deregistration of tax payers
10.2 Personal identification number: Issue, uses, cancellation of a PIN
10.3 Taxpayer’s tax representative: Appointment, liabilities and obligations
10.4 Tax Returns and Assessments: Self-assessment, Default assessment, Advance assessment, Amendment of assessments
10.5 Collection, recovery and refund of taxes
10.6 Tax Decisions, Objections, Appeals and Relief of mistakes
10.7 Voluntary Tax Disclosure Program
10.8 Administrative penalties and offences
10.9 Application of ICT in taxation: Practical use of iTax to file the returns
11. Administration of Value Added Tax (VAT)
11.1 Introduction to VAT, Basis of charging VAT and VAT rates
11.2 Rights and obligations of VAT taxable person
11.3 Registration and deregistration of businesses for VAT
11.4 Key terms in VAT: Input tax, Output tax, Supply, Time of supply/Tax point and Taxable value of a supply/Value for VAT supported with relevant calculations
11.5 Deduction of input tax
11.6 Accounting for VAT and VAT records
11.7 Taxable and non-taxable supplies: Zero rated supplies, Exempt goods and exempt services including restriction of input tax claim.
11.8 Privileged persons and institutions
11.9 Withholding VAT and withholding VAT agents
11.10 VAT returns and assessments including VAT Auto Assessments
11.11 Remission, rebate and refund of VAT
11.12 Changes to be notified to the commissioner
11.13 Offences, fines, penalties and interest
12. Customs Taxes and Excise Taxes
12.1 Purpose of customs and excise duties
12.2 Imposition of customs duty
12.3 Customs procedure
12.4 Bonded warehouse and bond securities
12.5 Goods subject to customs control
12.6 Refund of duty
12.7 The Simba System/Integrated Customs Management System
12.8 Imposition of excise duty
12.9 Excisable goods under excise control
12.10 Application for excise duty (licensing), issue of licences, Suspension and Cancellation of Licences
12.11 Excise stamps and Excisable goods management system
12.12 Refund of excise duty
12.13 Excise duty returns and payments
12.14 Offences and penalties
13. Miscellaneous fees and levies
13.1 Export levy
13.2 Import Declaration fee (IDF)
13.3 Railway Development Levy (RDL)
13.4 Stamp duty
13.5 Catering levy
13.6 Motor vehicle advance tax
13.7 Betting, Lotteries & Gaming taxes
Sample reading and reference material
1. East African Community Customs Management Act, 2004 (Revised Edition 2017)
2. Excise Duty Act No. 23 Of 2015 Revised Edition 2017 [2015]
3. Income Tax Act Revised Edition 2018
4. The Public Finance Management Act, 2012
5. Tax Procedures Act of 2015,Revised Edition 2018
6. Value Added Tax Act of 2013 Revised Edition 2018
7. Kasneb e-learning resources (link on kasneb website)
8. Kasneb approved study packs
9. Sample text books on taxation from local authors