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Public Finance and Taxation Revision Kit – Past exam questions and answers for kasneb CPA, CS and CCP courses
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TOPIC 1
INTRODUCTION TO PUBLIC FINANCIAL MANAGEMENT
QUESTION 1
April 2024 Question One B
Highlight FOUR documents that are prepared in the process of county government budget preparation clearly indicating their timelines as envisaged by the provisions of Public Financial Management Act. (4 marks)
ANSWER
Documents that are prepared in the process of county government budget preparation
- County Fiscal Strategy Paper (CFSP): This document outlines the county’s budget priorities and resource envelope for the medium term. It is prepared by April 30th of the preceding financial year.
- County Budget Review and Outlook Paper (CBROP): This paper reviews the county’s economic and fiscal performance and presents the county’s budget proposals for the upcoming financial year. The County Treasury prepares the CBROP by November 30th of the preceding financial year.
- Budget Estimates (BE): These are detailed proposals for spending by each county department for the upcoming financial year. Sector Committees within the county government submit their Budget Estimates by October 31st of the preceding financial year.
- County Assembly Budget Bill (CABB): This bill formalizes the county’s budget proposals and requires approval by the County Assembly by April 30th of the financial year.
QUESTION 2
December 2023 Question One B
The Cabinet Secretary for the National Treasury or the state officer responsible for finance in your country is mandated by law to manage the national budget process. One of the task is to issue circulars for setting guidelines to be followed to all government entities.
With reference to the above statement, highlight FOUR contents of such a circular. (4 marks)
ANSWER
Contents of the circular issued by Cabinet Secretary
- A schedule for preparation of the budget indicating key dates by which various exercises are to be completed
- The procedures for the review and projection of revenues and expenditures
- Key policy areas and issues that are to be taken into consideration when preparing the budget
- Procedures setting out the manner in which members of the public shall participate in the budget process;
- The format in which budget information and documents shall be submitted; and
- Any other information that, in the opinion of the Cabinet Secretary, may assist the budget process.
QUESTION 3
August 2023 Question One B
The societal needs of most developing countries are mostly greater than the resources available to the government. The countries must therefore develop a public financial management framework to act as a tool for guiding formulation and implementation of public policies so as to improve the welfare of the citizens.
In relation to the above statement, outline FOUR principles of public financial management regulations that govern all aspects of public finance in your country. (4 marks)
ANSWER
Principles of public financial management regulations that govern all aspects of public finance in Kenya
According to Article 201 of the Constitution of Kenya, The following principles shall guide all aspects of public finance in the Republic:-
(a) There shall be openness and accountability, including public participation in financial matters;
(b) The public finance system shall promote an equitable society, and in particular—
- The burden of taxation shall be shared fairly;
- Revenue raised nationally shall be shared equitably among national and county governments; and
- Expenditure shall promote the equitable development of the country, including by making special provision for marginalised groups and areas;
(c) The burdens and benefits of the use of resources and public borrowing shall be shared equitably between present and future generations;
(d) Public money shall be used in a prudent and responsible way; and
(e) Financial management shall be responsible, and fiscal reporting shall be clear.
QUESTION 4
April 2023 Question One C
Identify FIVE matters that are included in the budget estimates submitted to the County Assemblies by the County Executive Committee members for finance in respect of the budget for every financial year. (5 marks)
ANSWER
Under Section 130(b) Public Financial Management Act 2012 the following matters are included in the budget estimates submitted to the County Assemblies by the County Executive Committee members for finance in respect of the budget for every financial year
- A list of all county government entities that are to receive funds appropriated from the budget of the county government;
- Estimates of revenue projected from the Equalisation Fund over the medium term;
- All revenue allocations from the national government over the medium term, including conditional and unconditional grants;
- All other estimated revenue by broad economic classification;
- All estimated expenditure, by Vote, and by programme, clearly identifying both recurrent and development expenditures;
- Information regarding loans made to the county government, including an estimate of principal, interest and other charges to be paid by that county government in the financial year in respect of those loans;
QUESTION 5
December 2022 Question One C
Outline SIX contents that should be included in development plan prepared by every county government as specified under Section 126 (1) of the Public Finance Management Act, 2012. (6 marks)
ANSWER
Contents that should be included in development plan prepared by every county government as specified under Section 126 (1) of the Public Finance Management Act, 2012
- Strategic priorities for the medium term that reflect the county government’s priorities and plans
- A description of how the county government is responding to changes in the financial and economic environment
- Programmes to be delivered with details for each programme of:
- The strategic priorities to which the programme will contribute;
- The services or goods to be provided
- Measurable indicators of performance where feasible and
- The budget allocated to the programme
- Payments to be made on behalf of the county government, including details of any grants, benefits and subsidies that are to be paid
- A description of significant capital developments
- A detailed description of proposals with respect to the development of physical, intellectual, human and other resources of the county, including measurable indicators where those are feasible
- A summary budget in the format required by regulations; and
QUESTION 6
August 2022 Question One D
Outline the stages to be followed in the budget process for the national government in any financial year. (8 marks)
ANSWER
Stages to be followed in the budget process for the national government in any financial year
The budget process for the national government in any financial year shall comprise the following stages:
- Integrated development planning process which shall include both long term and medium term planning
- Planning and determining financial and economic policies and priorities at the national level over the medium term
- Preparing overall estimates in the form of the Budget Policy Statement of national government revenues and expenditures
- Adoption of Budget Policy Statement by Parliament as a basis for future deliberations
- Preparing budget estimates for the national government
- Submitting those estimates to the National Assembly for approval
- Enacting the appropriation Bill and any other Bills required to implement the National government’s budgetary proposals
- Implementing the approved budget
- Evaluating and accounting for, the national government’s budgeted revenues and expenditures
- Reviewing and reporting on those budgeted revenues and expenditures every three months.
QUESTION 7
April 2022 Question Two A
With reference to public finance management, distinguish between “planning” and “budgeting”. (4 marks)
ANSWER
Distinction between “planning” and “budgeting” with reference to public finance management
Planning refers to the process of developing long-term strategies and goals for the use of public resources. It involves analyzing current trends, identifying future needs, and developing policies and programs to address those needs. Planning is usually done over a multi-year horizon and involves a wide range of stakeholders, including government officials, private sector representatives, civil society organizations, and the general public.
Budgeting is the process of allocating resources to specific programs and activities within the context of the overall plan. It involves translating the long-term goals and strategies into specific financial targets and plans for the short-term. Budgeting is typically done on an annual basis and involves government officials, particularly finance and budget officers, as well as other stakeholders.
Planning is the process of setting long-term goals and strategies, while budgeting is the process of allocating resources to specific programs and activities to achieve those goals. Both planning and budgeting are critical to effective public finance management, and they must work together to ensure the optimal use of public resources.
QUESTION 8
December 2021 Question Two A
Outline two objectives of the Public Finance Management Act.
(2 marks)
ANSWER
Objectives of the Public Finance Management Act
- To ensure Public finances are managed at both the national and the county levels of government in accordance with the principles set out in the Constitution
- To ensure Public officers who are given responsibility for managing the finances are accountable to the public for the management of those finances through Parliament and County Assemblies.
QUESTION 9
December 2021 Pilot Paper Question Two A
Highlight the steps followed by your county government in developing its annual budget. (9 marks)
ANSWER
Steps followed by your county government in developing its annual budget
The budget process for county governments in any financial year shall consist of the following stages—
- Integrated development planning process which shall include both long term and medium term planning;
- planning and establishing financial and economic priorities for the county over the medium term;
- making an overall estimation of the county government’s revenues and expenditures;
- adoption of County Fiscal Strategy Paper;
- preparing budget estimates for the county government and submitting estimates to the county assembly;
- approving of the estimates by the county assembly;
- enacting an appropriation law and any other laws required to implement the county government’s budget;
- implementing the county government’s budget; and
- accounting for, and evaluating, the county government’s budgeted revenues and expenditures;
QUESTION 10
September 2021 Question One B
Outline four functions of a County Treasury as provided in the Public Finance Management Act. (8 marks)
ANSWER
Responsibilities of a County Treasury with respect to county public funds
- The County Treasury for each county government shall ensure that all money raised or received by or on behalf of the county government is paid into the established County Revenue Fund.
- County Government Executive Committee may establish county government Emergency Fund.
- County Executive Committee member for finance is responsible for administering the Emergency Fund
- County Executive Committee member for finance has the responsibility to seek approval for payments from Emergency Fund from the county assembly.
- County Treasury is to submit a report to Auditor-General in respect to Emergency Fund
- County Treasury is responsible for preparing County Fiscal Strategy Paper.
- County Treasury responsible for preparing a County Budget Review and Outlook Paper.
QUESTION 11
September 2021 Question Two A
Explain the following attributes that must be considered when preparing a national budget:
(i) Periodicity. (2 marks)
(ii) Predictability. (2 marks)
(iii) Comprehensiveness. (2 marks)
ANSWER
Explanation of the following attributes that must be considered when preparing a national budget:
(i) Periodicity:
This attribute refers to the frequency with which a national budget is prepared and presented. A budget must be prepared on a regular basis to ensure continuity and stability in government spending. The most common frequency for national budgets is annually, although some countries may prepare budgets bi-annually or every three years. The periodicity of the budget must be consistent and predictable to enable effective planning and management of public resources.
(ii) Predictability:
This attribute refers to the degree of certainty that stakeholders can have in relation to the budget, including the timing of its preparation and the expected outcomes of government spending. A predictable budget helps to reduce uncertainty and enables stakeholders to plan and allocate their resources accordingly. This can also help to build trust in government decision-making processes and increase confidence in the economy.
(iii) Comprehensiveness:
This attribute refers to the extent to which the budget covers all aspects of government spending and revenue. A comprehensive budget includes all sources of revenue and all areas of government spending, including capital investments and debt servicing. It also includes estimates of the cost of implementing government policies and programs. A comprehensive budget enables stakeholders to understand the government’s priorities and to evaluate the effectiveness of government spending in achieving its goals. It also helps to ensure that all government activities are transparent and accountable.
QUESTION 12
May 2021 Question One B
In managing the national government public finances, the National Treasury or such state organ in your country enforces certain fiscal responsibility principles in accordance with the Constitution and the Public Finance Management Act.
In relation to the above statement, explain four fiscal responsibility principles. (8 marks)
ANSWER
Fiscal responsibility principles enforced by national treasury in managing public funds in accordance with the Constitution and the Public Finance Management Act
- Over the medium term a minimum of thirty percent of the national and county governments budget shall be allocated to the development expenditure.
- The national government’s expenditure on wages and benefits for its public officers shall not exceed a percentage of the national government revenue as prescribed by regulations
- Over the medium term, the national government’s borrowings shall be used only for the purpose of financing development expenditure and not for recurrent expenditure
- Public debt and obligations shall be maintained at a sustainable level as approved by Parliament for the national government and the county assembly for county government
- Fiscal risks shall be managed prudently
- A reasonable degree of predictability with respect to the level of tax rates and tax bases shall be maintained, taking into account any tax reforms that may be made in the future.
KASNEB SYLLABUS
PAPER NO. 12 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
- Introduction to Public Financial Management
- Nature and scope of public finance
- Sources of public finance
- Objectives of the Public Financial Management Act and Financial regulations
- Budget process for national, county and public entities, Development plan preparation, Treasury circulars, Cash flow projections, Budget estimates and revenue raising measures.
- Role of the National Treasury and County Treasuries with respect to the management and control of public finance.
- Relationship between National and County Governments on budget and economic matters
- The process of sharing revenue between national and county governments and among the county governments: Factors considered and formula used
- Division of revenue bill and county allocation of revenue bill
- The role of the Commission on Revenue on Allocation (COR)
- The role of the Council of Governors in county financial management
- National Government public funds: The Consolidated Fund; The Contingency fund; The Equalisation fund and Other National Government public funds
- County Government public funds; County Revenue Fund; County Government Emergency Funds and other county public funds
- County government revenue sources.
- Oversight Function in Public Finance Management
- The role of National Assembly: Responsibilities of the National Assembly budget committee in public finance matters
- The role of Senate: Responsibilities of the Senate budget committee in public finance matters
- The role of Parliamentary Budget Office
- The role of Auditor General
- The role of Internal Audit
- Role of Controller of Budget
- The role of public sector accounting standards board
- Procurement in public entities
- Introduction to Public Procurement and Disposal (PPD) Act
- Procurement guidelines as envisaged by PPD Act
- 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
- Tendering process and selection of suppliers in public sector
- Concept of e-procurement
- Public Private Partnerships Arrangements
- Rationale and justification for Public Private Partnerships
- Establishment of Public Private Partnerships (PPP) Unit in the National Treasury
- Contract/project agreements, guidelines and standards
- Composition and role of PPP petition committee
- Establishment and role of PPP project facilitation fund
- Public Debt Management
- Establishment of debt management office
- Objectives of debt management in public sector
- Sources of public debt in Kenya
- Management of debts by county governments and other public entities
- Role of the Cabinet Secretary of the National Treasury in public debt management
- Measures that can be adopted to reduce public debt
- Introduction to Taxation
- Definition of Tax, Taxation and Types of taxes in Kenya
- History of taxation
- Classification of taxes; Tax shifting and Factors that determine tax shifting
- Principles of an optimal tax system
- Types of tax systems; Single versus multiple tax systems
- Purposes of taxation/Why the government levy taxes
- Tax evasion and tax avoidance
- Taxable capacity
- Budgetary and Fiscal policies
- The Revenue Authority; Structure, Functions, Large and Medium Taxpayers Office mandate
- Taxation of Income
- Introduction
- Basis of charging tax in Kenya: Section 3 of the Income Tax Act
- Concept of residency and Criteria of taxing income in Kenya.
- Taxable and non-taxable persons
- Specified Sources of income
- Incomes exempted from taxation
- Taxation of Employment income
- Taxable cash and non-cash benefits/rewards received from employment
- Non-taxable cash and non-cash benefits/rewards received from employment
- Allowable deductions against employment income
- Tax credits (withholding tax, personal and insurance relief, others)
- Taxation of lumpsum payment for services rendered and services that would have been rendered; Gratuity, terminal dues, compensation for loss of office.
- Operations of PAYE systems: Preparation of PAYE returns, categories of employees, multiple sources of income, irregularly paid employees, casual workers, PAYE audit and triggers
- Other Statutory deductions (NSSF and NHIF)
- All these should be illustrated with relevant computations including PAYE computations
- Taxation of Business Income
- Introduction to taxation of business income including criteria of taxing business income
- Income Tax Act provisions on computation of business income
- Allowable and disallowable business expenses and taxable business income
- Taxable business income and tax payable computations in respect of:
- Sole proprietorship
- Partnerships (excluding admissions, retirement of partners and conversions)
- Incorporated entities (excluding specialised institutions)
- Taxation of rental income and royalties
- Taxation of Farming income
- Taxation of Investment income (Dividend and interest income)
- Turnover tax and Minimal tax
- Taxation of Capital gains
- Taxation of Digital income; digital service tax and Digital service tax agents
- Withholding Tax
- Income subject to withholding tax (Dividends, Interest, management and profession fees, royalties)
- Withholding Tax Rates on Residents and non-residents
- Introduction to Double Tax Agreements and the impact on withholding tax payments
All the above should be illustrated with relevant basic computations.
- Investment Allowances/deductions
- Introduction to capital allowances and Rationale for capital deductions
- Types of capital allowances; Theory and computations
- Investment deductions; Ordinary manufacturers
- Industrial building deductions
- Wear and tear allowances
- Farm works deductions
- Shipping investment deduction
- Other deductions
All the above should be illustrated with relevant computations
- Administration of Income Tax and Tax Procedures
- Registration and deregistration of tax payers
- Personal identification number: Issue, uses, cancellation of a PIN
- Taxpayer’s tax representative: Appointment, liabilities and obligations
- Tax Returns and Assessments: Self-assessment, Default assessment, Advance assessment, Amendment of assessments
- Collection, recovery and refund of taxes
- Tax Decisions, Objections, Appeals and Relief of mistakes
- Voluntary Tax Disclosure Program
- Administrative penalties and offences
- Application of ICT in taxation: Practical use of iTax to file the returns
- Administration of Value Added Tax (VAT)
- Introduction to VAT, Basis of charging VAT and VAT rates
- Rights and obligations of VAT taxable person
- Registration and deregistration of businesses for VAT
- 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
- Deduction of input tax
- Accounting for VAT and VAT records
- Taxable and non-taxable supplies: Zero rated supplies, Exempt goods and exempt services including restriction of input tax claim.
- Privileged persons and institutions
- Withholding VAT and withholding VAT agents
- VAT returns and assessments including VAT Auto Assessments
- Remission, rebate and refund of VAT
- Changes to be notified to the commissioner
- Offences, fines, penalties and interest
- Customs Taxes and Excise Taxes
- Purpose of customs and excise duties
- Imposition of customs duty
- Customs procedure
- Bonded warehouse and bond securities
- Goods subject to customs control
- Refund of duty
- The Simba System/Integrated Customs Management System
- Imposition of excise duty
- Excisable goods under excise control
- Application for excise duty (licensing), issue of licences, Suspension and Cancellation of Licences
- Excise stamps and Excisable goods management system
- Refund of excise duty
- Excise duty returns and payments
- Offences and penalties
- Miscellaneous fees and levies
- Export levy
- Import Declaration fee (IDF)
- Railway Development Levy (RDL)
- Stamp duty
- Catering levy
- Motor vehicle advance tax
- Betting, Lotteries & Gaming taxes