INCOME TAX MATHEMATICS PAPER TWO

REVISION
Taxes on personal income is income tax. Gross income is the total amount of
money due to the individual at the end of the month or theyear.
Gross income = Basic salary+ all allowances/benefits.

Taxable income is the amount on which tax is levied. This is the gross income less
any special benefits on which taxes are not levied. Such benefits includere funds
for expenses incurred while one is on official duty.
In order to calculate the income tax that one has to pay, we convert the taxable
income into Kenya pounds (K£) per annum or per month as dictated by the table
of rates given.
Relief.

Every employee in kenya is entitled to an automatic personal tax relief of

sh.12672p.a(sh.1056permonth).
An employee with a life insurance policy on his life, that of his wife or child, may
make a tax claim on the premiums paid towards the policy at sh.3 per pound
subject to a maximum claim of sh.3000

PAYE
In Kenya, every employer is required by the law to deduct income tax from the
monthly earnings of his employees every month and to remit the money to the
income tax department. This system is called Pay As You Earn(PAYE).
Housing

If an employee is provided with a house by the employer

(eitherfreelyorforanominalrent) then 15% of his salary is added to his salary (less
rent paid) for purpose of tax calculation. If the tax payer is a director and is
provided with a free house, then 15% of his salary is added to his salary before
taxation.
Example
Mr. Chei is a senior teacher on a monthly basic salary of Ksh.16000. On top of his
salary he gets a house allowance of sh12000, a medical allowance of Ksh.3060
and a hardship allowance of Ksh.3060 and a hardship allowance of Ksh.4635. He
has a life insurance policy for which he pays Ksh.800 per month and claims
insurance relief.
i.Use the tax table below to calculate his PAYE.

Incomein£permont Rate %

1-484 10

485-940 15

941-1396 20

1397-1852 25

Excess over 1852 30

Solution

a) Taxable income/Gross income=Basic salary+ All allowance - Special benefits (if

Stated)

=16000+12000+3060+4635 =Ksh. 35695

Converting to £=35695/20 =K£1784.75

Therefore tax charged is:

First, £484=£484×10/100=£48.40

Next, £456=£456×15/100=£68.40

Next, £456=£456×20/100=£91.20

Remaining, £388=£388×25/100=£97.00
Total tax due= £(48.40+68.40+91.20+97.00) =£305

Insurance relief (3% per pound upto maximum of sh.3000) = 3/20×800 =120

Total relief= (120+1056) =1176

Tax payable per month is 6100-1176=4924 (Which is our P.A.Y.E)

NB: For calculation of PAYE, taxable income is rounded down or truncated to the
nearest wholenumber( ie 1784.75 becomes 1784)

b) In addition to the PAYE, the following deductions are made on his pay every
month

(I) WCPS at 2% of basic salary

(ii) NHIF Ksh 400

(III) Co-operative shares and loan recovery ksh 4800

Calculate his net pay

Solution

Total deductions are : sh(2/100×16000+400+4800+800+4924) =sh. 11244

Therefore Net pay= sh (35695-11244) =sh. 24451

Questions

1. The table below shows income tax rates in a certain year.

Monthly taxable income Tax rate %in each

in ksh shilling

1 - 12 298 10
 12b299 - 23 885 15

23 886 - 35 472 20

35 473 - 47 059 25

Over 47 060 30

In the year, the monthly earnings of Kanini were as follows:

Basic salary. Ksh 64 500

House allowance Ksh 12 000

Kanini contributes 7.5% of her basic salary to a pension scheme. This

contribution is exempted from taxation. She is entitled to a personal tax relief of
Ksh 1 408 per month.

Calculate:

(a) Kanini's monthly taxable income.(2marks)

(b) the tax payable by Kanini that month.(6marks)

(c)Kanini's net pay that month.(2marks)

2.The table below shows the income tax rates for a certain year

Monthly taxable income in ksh Tax rate

percentage in
 shilling

1 - 11 180 10

11 181 - 21 714 15

21 715 - 32 248 20

32 249 - 42 782 25

Over 42 782 30

(a)During the year, Moraa's monthly income was as follows:

Basic salary Ksh 40,000

House allowance Ksh 11,090

Commuter allowance Ksh 7,000

Calculate:

(I) Moraa's total monthly taxable income.(1mark)

(ii) total income tax charged on Moraa's monthly income.(4marks)

(b) Moraa's net monthly tax was Ksh 10,750.80. Determine the monthly tax relief
allowed.(1mark)

(C)A proposal to expand the size of the first income tax band by 50% while
retaining the size of the next three bands was made. The tax rates would remain
as before in each band.

Using the proposal, calculate:

(I) the tax Moraa would pay in the first band. (1mark)

(ii) the tax Moraa would pay in the last tax band. (3Marks)
3The table below shows monthly income tax rates for a certain year.

Monthly income (in ksh) Tax rate in each shilling

1 - 11 180 10%

11 181 - 21 714 15%

21 715 - 32 248 20%

32 249 - 42 782 25%

Over 42 782 30%

In that year a monthly personal tax relief of Ksh 1 280 was allowed. In a certain
month of that year, Sila earned a monthly basic salary of Ksh 52 000, a house
allowance of Ksh 7 800 and a commuter allowance of Ksh 5 000.

(a) Calculate:

(i) Sila’s taxable income (2marks)

(ii) the net tax payable by Sila in that month (5marks)

(b) In July that year, Sila’s basic salary was raised by 4%. Determine Sila’s net
salary in July (3marks)

4. The income tax rates of a certain year were as shown in the table below:

Monthly taxable Tax rate

0 to 9 680 10

9 681 to 18 800 15
 18 801 to 27 920 20

27 921 to 37 040 25

37 041 and above 30

In that year, Shaka’s monthly earnings were as follows: Basic salary Ksh 28600

House allowance Ksh 15 000

Medical allowance Ksh 3 200

Transport allowance Ksh 540

Shaka was entitled to a monthly tax relief of Ksh 1056.

(a) Calculate the tax charged on Shaka’s monthly earnings. (6marks)

(b) Apart from income tax, the following monthly deductions were made; a Health
Insurance fund of Ksh 500, Education Insurance of Ksh 1 200 and 2% of his basic
salary for widow and children pension scheme. Calculate Shaka’s monthly net
income from his employment.(4marks).

5. The taxation rates for 2023 were as follows

Income (Ksh per month) Tax rate %

1 - 10 164 10

10 165 - 19 740 15

19 741 - 29 316 20

29 317 - 38 892 25

Above 38 892 30
Mr. Chei paid a tax of Ksh 9532.40 after having been given a personal relief of Ksh
1162 per month.

(a) How much tax would he have paid if he did not get relief (2marks)

(b) Calculate his total taxable income in ksh per month (6marks)

(C) Calculate his basic salary per month (2marks)

The end.