This economics question tests your understanding of economic models and analysis. The step-by-step answer below applies the relevant framework and explains the reasoning.
ScanSolve AI Answer
Step 1: Calculate Mr. Odongo's taxable income per month. Taxable income is the total income subject to tax. The affordable housing programme deduction is exempted from taxation, so it reduces the taxable income. Taxable Income = Basic Salary + House Allowance - Affordable Housing Programme Deduction Taxable Income = Ksh. 150,500 + Ksh. 85,000 - Ksh. 3,750 Taxable Income = Ksh. 235,500 - Ksh. 3,750 Taxable Income = Ksh. 231,750 a) Mr. Odongo's taxable income per month is Ksh. 231,750. Step 2: Calculate the gross tax based on the taxable income and tax bands. The taxable income is Ksh. 231,750. We apply the tax rates to each band: • First Ksh. 11,180 at 10%: 0.10 × 11,180 = Ksh. 1,118 • Next Ksh. (21,714 - 11,180) = 10,534 at 15%: 0.15 × 10,534 = Ksh. 1,580.10 • Next Ksh. (32,248 - 21,714) = 10,534 at 20%: 0.20 × 10,534 = Ksh. 2,106.80 • Next Ksh. (42,782 - 32,248) = 10,534 at 25%: 0.25 × 10,534 = Ksh. 2,633.50 • Remaining income Ksh. (231,750 - 42,782) = 188,968 at 30%: 0.30 × 188,968 = Ksh. 56,690.40 Total Gross Tax = 1,118 + 1,580.10 + 2,106.80 + 2,633.50 + 56,690.40 = Ksh. 64,128.80 Step 3: Calculate the total tax relief. • Insurance relief: 15% of premiums paid (Ksh. 25,000), subject to a maximum of Ksh. 3,000. 0.15 × 25,000 = Ksh. 3,750 Since Ksh. 3,750 is greater than the maximum relief of Ksh. 3,000, the insurance relief is Ksh. 3,000. • Monthly personal relief: Ksh. 1,600. Total Relief = Insurance Relief + Personal Relief Total Relief = Ksh. 3,000 + Ksh. 1,600 = Ksh. 4,600 Step 4: Calculate the net tax. Net Tax = Gross Tax - Total Relief Net Tax = Ksh. 64,128.80 - Ksh. 4,600 Net Tax = Ksh. 59,528.80 Rounding to the nearest shilling: Net Tax = Ksh. 59,529 b) Mr. Odongo's net tax to the nearest shilling is Ksh. 59,529. Step 5: Determine Mr. Odongo's net salary. First, calculate total gross earnings. Total Gross Earnings = Basic Salary + House Allowance Total Gross Earnings = Ksh. 150,500 + Ksh. 85,000 = Ksh. 235,500 Next, calculate total deductions. Total Deductions = Affordable Housing Programme + Net Tax + Cooperative Share + Cooperative Loan Total Deductions = Ksh. 3,750 + Ksh. 59,529 + Ksh. 12,000 + Ksh. 35,000 Total Deductions = Ksh. 110,279 Finally, calculate net salary. Net Salary = Total Gross Earnings - Total Deductions Net Salary = Ksh. 235,500 - Ksh. 110,279 Net Salary = Ksh. 125,221 c) Mr. Odongo's net salary is Ksh. 125,221. Send me the next one 📸