Question One (30 Marks)

a) In the face of implementing the government’s Big Four Agenda and grappling with the
unprecedented effects of the COVID19 pandemic, the government has had to employ
austerity measures and budgetary controls to cut back costs.
i. Explain any three roles of VAT in achieving budgetary objectives? (6 Marks)

Kenya School of Revenue Administration ii. Highlight any two COVID19 relief measures employed by the government to relieve
Kenyans. (4 Marks)
ISO 9001:2015 Certified b) The following information was extracted from the records of Barakwa Hardware suppliers
registered for VAT purposes in May 2021.
Supplies for the month of January 2021 were as follows:
Diploma in Tax Administration

DTA 1002: VAT LAW Sales Amount

Local sales 2,000,000

Main/ Special/Supplementary Examination Cement exported to Kampala 970,000

Iron sheets donated to Baraka Secondary 560,000
Roofing nails to Holy Cathedral 250,000
Date: September 2021 Time: 2 Hours Iron sheets to retiring employee 190,000
Cement to the Financial controller 680,000
INSTRUCTIONS: Door locks to Kenya Defence Forces 350,000
Purchases
1. This paper contains Five questions. Imports (Iron sheets) 720,000
Cement Local 1,000,000
2. Question One is compulsory Electricity and Telephone 20,000
3. Answer Question One and any other Two Questions. Any extra questions attempted will Transport Charges 180,000
Storage charges 250,000
not be marked. Security 10,000
4. Marks for each question are indicated on the question paper. Note: All values are quoted VAT exclusive.
Additional Information:
5. All answers should be written on the official answer booklet provided.
i. Due to the recent pandemic, the taxpayer has not filed the January 2021 return; he claims
6. Each question should be answered on a separate sheet of paper. that business has not been good.
7. Cell phones, laptops and similar electronic gadgets are NOT allowed in the examination ii. A credit note received in December 2020 involving tax amounting to Shs.30,000 has not
been adjusted
room. iii. Exported supplies had been overstated by Shs.90,000
8. Indicate only your Admission Number on each answer sheet. iv. Discounts given in January 2021 amounting to Shs.72,000 had not been netted out.
v. Input tax claimed in November 2020 had been overstated by Shs.46,000. This was not
9. Detection of any cheating shall lead to automatic disqualification.
adjusted in the December 2020 return.
10. Answer all questions in English vi. The sales to KDF had been understated by Shs.80,000.
11. Candidates should remain in the examination room throughout the examination period. vii. A debit note, received in December 2020, amounting to Shs.320,000 had not been
effected.
12. Ensure that you have signed the exam attendance register before leaving exam room. viii. Understated local sales amounting to Shs.480,000 for November 2020 remained
outstanding.
Required:
Prepare a VAT Account for the month of January 2021 showing the tax due and penalties and
interest charged. (20 Marks)

Page 1 of 5 Page 2 of 5
 Question Two (20 Marks)
Question Four (20 Marks)
a) Discuss any three practical problems/challenges experienced by a Kenyan in complying
with the VAT Act, citing practical ways to overcome each of these challenges. (10 Marks) a] A person who is registered for VAT, who is commonly referred to as the registered person,
must maintain certain records to satisfy the VAT regulation. State any four examples of such
b) Distinguish between services exported out of Kenya and services imported into Kenya.
records that must be maintained. (4 Mark)
(4 Marks)
b) The following is a summary of the business activities of Burukenge Ltd for five months.
c) Explain how exemption of goods and services affects businesses and members of the Burukenge Ltd is registered for VAT.
public. (6 Marks)
Month Sales (Shs.) Purchases (Shs.)
Jan 2020 3960000 1800000
Question Three (20 Marks)
Feb 2020 5510000 2570000
Mar 2020 4806000
c) Mbosso Baikoko Limited is registered with VAT as a spare part dealer. In the month of
January 2020 the company’s business transactions were as follows:- Apr 2020 2101000 860000
Supplies (Sales) Amount (Ksh.) May 2020 6500000 3950000
General rated supplies 3,750,000
Supplies to Export processing zone 920,000
Supplies to Korean Embassy 600,000
Exempt Supplies to Democratic Republic of Congo 1,300,000 Additional Information:
Exempt supplies 1,200,000
Purchases Amount (Ksh.) i. The composition of Jan-Mar sales were as follows:
Imports 1,500,000 Standard rate 45%
Local 650,000
Telephone heads (office) 450,000 Zero rate 51%
Electricity 20,000 Exempt 4%
Security office 30,000
Rent 50,000 ii. The composition of Apr-May sales were as follows:
Fuel 28,000
Standard rate 75%
Medical cover for staff 1,200,000
Zero rate 11%
Close scrutiny of the company’s records of accounts revealed the following:-
Exempt 14%
i) Spare parts donated to Jomo Kenyatta Foundation amounting to iii. A tenth of all purchases are made from non-registered suppliers, while the rest are made
Kshs. 200,000 had not been invoiced.
from registered suppliers.
ii) Exports made to DRC had been overstated by Kshs. 120,000. This was not adjusted in
the taxpayer’s book of account. iv. 5% of all purchases are other rated supplies.
iii) A credit note received on July 2019 amounting to Kshs. 50,000 had not been effected. v. A credit balance brought forward in January 2020 amounted to Shs.484,000.
iv) A credit note issued on September 2019 amounting to Kshs. 180,000 had not been
adjusted. vi. The company issued a credit note worth Shs.70,000 net in March 2020.
v) The VAT column in the Purchases Journal had been overstated by Ksh. 100,000. vii. In May 2020, the company received a debit note worth Shs. 158,000 net of VAT.
vi) The Sales daybook had been understated by Kshs. 125,000. Required:

Note: - All prices are VAT Exclusive and taxable at 16% where applicable. Prepare a VAT Summary for the five-month period ended 31st May 2020. (16 Marks)

Required:- Prepare the VAT Account for the month of January 2020 showing the tax
payable to the commissioner. (20 Marks)

Page 3 of 5 Page 4 of 5
 Question Five (20 Marks)

Vicotty Suppliers Limited made the following supplies in the month of July 2021.

i. Supplies to Jazamali Bank Kenya Ltd, a withholding VAT agent, valued at Shs.
1,580,000
ii. Supplies to Utumishi County Hospital, another withholding VAT agent, valued at Shs.
2,330,000
iii. Supplies of goods worth Shs. 3,050,000 to Victor Suppliers Limited, a related party
based in Turkana. The company invoiced Victor Suppliers Shs.2,500,000 for the said
goods.
iv. Delivered goods worth Shs.2,423,000 to Kagongo Junior, based on an acknowledged
invoice dated 30th May 2021. The customer was declared bankrupt during the month.
v. Purchased goods valued at Shs.1,700,000
vi. Incurred expenses incurred worth Shs.838,000 during the month.

The above figures are inclusive of VAT.

Required:
a) Explain any two benefits of the Withholding VAT system of tax. (4 Marks)
b) Advise Vicotty suppliers on the computation of proper taxable value while preparing
the company invoices. (4 Marks)
c) Advise Vicotty Suppliers on her options following the bankruptcy declaration of her
customer, Kagongo Junior. (3 Marks)
d) Compute the amount of tax withheld and paid to the commissioner by Utumishi County
Hospital for the month of July 2021. (2 Marks)
e) Compute the amount of payment made by Jazamali Bank Kenya Ltd to Vicotty
Suppliers for the purchases made in the month of July 2021. (2 Marks)
f) Prepare Vicotty Supplies VAT return for July 2021. (5 Marks)

Page 5 of 5