CPA
Advanced Leval
Advanced Tax November 2020
Suggested Solutions

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Common Challenges to the harmonization of tax systems among countries is an economic trading blocks

1. Mistrust between Member States

2. Political and economical instability in some member states

3. Fear of losing political and economic sovereignty

4. Member States' heavy external debt burden

5. Lack of technical experts

6. Corruption in some member states

7. Globalization issues

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This petition committee is established under PPE Act, 2013. Composition and membership
The membership consist of:

The principle secretary who is the chairperson

Four other members appointed by the cabinet secretary

Three members from a quorum

Roles

Section 67 of the Act establishes a Petitions Committee to consider all petitions and complaints submitted by private parties during the tendering process and to enter into project agreements.

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PPE facilitation funds shall be created and the source of fund include:

a) Grant and duration

b) Levy's or tarrifs as may be imposed on a project

c) success fee paid per project

d) Amounts paid by the ministry of finance

e) Appropriation in Aid (AIA)

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Functions of directorate of Public Debt Management

1.Implement public debt management policies to reduce its long-term financing costs and take risks into account

2. Maintain a reliable debt database for all loans taken by the national, county government.

3. Prepare and update the annual medium-term debt management strategy, including debt sustainability analysis

4.Prepare and implement national government borrowing programs, including repayment of outstanding debt

5.Representation of the Treasury for the issuance of Treasury bonds

6. Monitor and evaluates all borrowings and debt related transactions representation of the treasury for the issuance of Treasury bonds to ensure that they are within the guidelines and risk parameter of the debt management strategy.

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Negative impacts of taxation in a country

1. Taxes affect the ability to work, save and invest. In effect, taxes reduce the cash held by society, which reduces saving and investment..

2. Taxation reduces taxpayers' disposable income. This will reduce their spending on necessities they need to be more efficient. As efficiency decreases, work capacity decreases.

3. Impact on resource allocation – Taxes can affect the amount or size of production in an economy by diverting resources in desired directions.

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Factors inhibiting efficient administration of value added tax
1. Tax payer identification

In Kenya, the VAT register is almost insignificant. The number of VAT registrations greatly exceeds the number of taxpayers actually filing VAT returns. 2. Corruption in tax administration

Corruption in tax administration involves tax officials, taxpayers, importers and customs clearance agents. Corruption finds other ways, like charging taxpayers for services that should be free, or helping taxpayers with complicated procedures, or charging taxpayers for tax exemptions.

3. Evasion and Avoidance

Tax evasion and avoidance is a problem facing the tax administration. Tax evoidance is the use of legal means to use the tax system to reduce the tax burden while evasion is the illegal way to reduce tax liability.

4. Cash transaction

Complications of tax administration can be seen when businesses conduct cash transactions. The parties involved in such arrangements have loopholes that are not recognized by the tax authorities, thus eroding the tax collected.

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1. TThe most important role for corporate tax incentives is to encourage businesses and individuals to engage in socially responsible behavior for the benefit of the community

2. If properly implemented, tax incentives can attract investment to one country or county.

3. Tax incentives encourage high capital transfers for investment, thereby promoting employment growth.

4. Tax incentives encourage investment in the hinterland, open up the economies of these regions and raise living standards.

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Tax policy challenge facing government in taxation of digital economy

➢The digital economy makes it difficult for government to effectively enforce tax rules that target businesses that do not have a physical presence in the country.
➢Taking steps to tax the digital economy could help reduce the competitive advantage of companies operating in the digital economy, as these big tech companies allegedly face a lower tax burden than their traditional competitors.
➢Taxing the digital economy would also prevent an increase in taxation on less strained factors such as labor income
➢The growth of the digital economy and the digitization of the traditional economy require the acceptance of new realities and tax regimes that do not follow the development of new business models

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Related party transaction - Refers to the transfer of resources between related parties.

It is an arrangement concluded between two parties by a pre-existing business relationship.

Transfer Pricing - This is the price at which related parties negotiate with each other.

Transfer pricing is essential to achieve a fair and equitable price when a transaction is between two common entities.


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Benefit of adopting transfer policing
1. Transfer pricing allows companies to reduce their tax burden. This allows business entities to send goods to high tariff countries and pay the lowest transfer price, resulting in a lower tax base associated with the transaction.

2. Using the transfer pricing method, companies reduce income taxes in countries with relatively high taxes by overvaluing goods that are transferred to countries that enjoy lower tax rates. In this way, the business entity manages to achieve a higher profit margin.

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Tax planning schemes
1. Acquiring residential house through mortagage. The 1^1st 150,000 per annum or 12,500 per month of the interest is an allowable deduction.

2. Registered retirement benefit plan. Employee contributions to a registered pension fund or provident fund may be deducted from employment income.

3. Consider purchasing life or education insurance to take advantage of the insurance deduction, which will reduce taxable employment income.

4. To enroll in a housing savings scheme, contributions of up to Kshs 4,000 per month or Kshs 48,000 per year will be allowable deduction from employment income.

5. Filling taxes and returns on time to avoid penalties and interest.

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