QUESTION ONE

For the purposes of this question you should assume that todays date is 10 December 2021

You are employed as a Tax Manager at Levy Plc, a manufacturing company. The company is planning to create a position for Business Development Manager , which currently does not exist and is in the process of setting a remuneration package for the position. The Human Resources Director has drafted proposals of two remuneration packages, which he intends to discuss with Actress Mundike who is being considered for the position. He has scheduled a meeting with Actress on 15 December 2021, in which the final package will be agreed on. Actress will be required to take up the position on 1 January 2022. The human resources Director has requested you to provide an evaluation of the taxation implications for both Actress and the company of each remuneration package. He has provided you with the following information relating to each of the packages:

REMUNERATION PACKAGE ONEThe following conditions will apply under this package:

(1) Actresss monthly basic salary will be K25,000.

(2) Her allowances as a percentage of the monthly basic salary will be:

- Monthly housing allowance 15%

- Monthly transport allowance 10%

- Monthly utility allowance 8%

- Monthly lunch allowance 2$%

(3) Actress will be required to provide her own accommodation as this will not be provided by the company. She will pay accommodation rentals of K3,750 per month for the house she will start renting on 1 January 2022. She will additionally pay utility expenses she will incur in relation to the accommodation of K2,000 per month.

(4) She will be required to use her own personal Toyota Rav 4 motor car which she acquired at a cost of K180,000 a year ago and has a cylinder capacity of 1600cc for the duties= of the employment. Her total mileage is expected to be 40,000 kilometers per annum. 20% of the total mileage will be travel from her home to the premises of Levy Plc, 70% will be travel in the performance of her employment duties and 10% will be on personal trips.

(5) She will incur motor car running expenses of K2,500 per month.

(6) She will further spend K500 per month on meals for lunch in the course of performing her employment duties.

REMUNERATION PACKAGE TWO

(1) Actress basic monthly salary will be K25,000.

(2) She will be provided with free meals from the staff canteen worth K500 per month

(3) She will be accommodated in a company owned house with a market value of K800,000 and will not be required to pay any rentals for the house. If the house had been let out, the company would have earned commercial rentals of K3,750 per month.

(4) The company will pay for the expenses relating to the house on her behalf and these will include electricity bills of K350 per month, water bills of K150 per month and the wages for her housekeeper of K1,500 per month. She will therefore not be required to pay for these expenses.

(5) Actress will be provided with a company owned motor car with a cylinder capacity 1,600cc on a personal to holderwhose annual total in the car will be 40,000 kilometers. 20% of the total mileage will be travel from her home to the premises of Levy Plc, 70% will be travel in the performance of her employment duties and 10% will be onpersonal trips.

(6) The company will pay for the all the motor car running expenses which will amount to K2,500 per month.

Additional information

The following statutory payments will arise under both, remuneration package one and remuneration package two:

(1) Actress employees National Health Insurance Contribution (NHISCs) and Levy plc.s employers NHISCs will arise at the rate of 1% of her monthly basic salary.

(2) Actreess employees NAPSA contributions and LevyPlcs employers NAPSA contributions will arise at the rate of 5% of her relevant gross monthly employment earnings.

(3) A skills development levy of 0.5% of her relevant gross monthly employment earnings will be paid ,by Levy Plc under each package.

(4) The earning ceiling for NAPSA contributions purposes for the tax year 2022 should be taken to be K278,256 per annum.

REQUIRED:

(a) Compute the total amount of income tax payable by Actress in the tax year 2022 under:

(i) Remuneration package one

(ii) Remuneration package two

(b) Advise Actress as to which of the two remuneration packages will be beneficial for her from a taxation point of view. Your advice should be supported by a computation of the amount of annual net income after deducting statutory payments and other relevant expenses from her gross income under each of the two remuneration packages.

(c) Provide a computation showing the amount of the annual tax savings arising for Levy Plc and the annual net after tax cash flow position for the company under:

(i) Remuneration Package one

(ii) Remunerations package two

(d) Based on your computations in part (c) above, advise the Human Resources Director of Levy Plc as to which of the two remuneration packages will be beneficial for the company from a taxation point of view.