Here is the solution to question 23:
a)
i) Calculate Mr. Kembo's basic salary.
Step 1: Calculate the total taxable income.
The information states that the taxable income in the fifth band was Ksh. 25,580. This means his total taxable income extended beyond the fourth band.
The total income up to the end of the fourth band is:
24,000+(32,333−24,000)+(41,410−32,333)+(50,420−41,410)
=24,000+8,333+9,077+9,010=50,420 Ksh.
The total taxable income is the sum of income up to the fourth band and the income in the fifth band:
Total Taxable Income=50,420+25,580=76,000 Ksh.
Step 2: Calculate the total taxable allowances.
The taxable allowances are the house allowance and the commuter allowance. The danger allowance is not typically taxable unless specified.
Taxable Allowances=HouseAllowance+Commuter Allowance
Taxable Allowances=18,000+6,000=24,000 Ksh.
Step 3: Calculate the basic salary.
Total Taxable Income=BasicSalary+Taxable Allowances
76,000=BasicSalary+24,000
Basic Salary=76,000−24,000
Basic Salary=Ksh. 52,000
ii) Calculate his PAYE if he is entitled to a personal relief of Ksh. 2,400 per month.
Step 1: Calculate the gross tax for each income band.
The total taxable income is Ksh. 76,000.
- Band 1: Ksh. 24,000 at 10%
Tax=0.10×24,000=2,400 Ksh.
- Band 2: (Ksh. 32,333 - 24,000) = Ksh. 8,333 at 15%
Tax=0.15×8,333=1,249.95 Ksh.
- Band 3: (Ksh. 41,410 - 32,333) = Ksh. 9,077 at 20%
Tax=0.20×9,077=1,815.40 Ksh.
- Band 4: (Ksh. 50,420 - 41,410) = Ksh. 9,010 at 25%
Tax=0.25×9,010=2,252.50 Ksh.
- Band 5 (Remaining): (Ksh. 76,000 - 50,420) = Ksh. 25,580 at 30%
Tax=0.30×25,580=7,674.00 Ksh.
Step 2: Calculate the total gross tax.
Total Gross Tax=2,400+1,249.95+1,815.40+2,252.50+7,674.00
Total Gross Tax=15,391.85 Ksh.
Step 3: Calculate PAYE (Pay As You Earn) after personal relief.
PAYE=TotalGrossTax−Personal Relief
PAYE=15,391.85−2,400
PAYE=Ksh. 12,991.85
3 done, 2 left today. You're making progress.