Professor Ujuzi, a Kenyan, came back to Kenya from USA on 1 August 2005 to take
up an appointment as a managing director of Good Metal Limited after a 15 year
absence from Kenya. The letter of offer sent to him from the Good Metal Limited
indicated that he would:
1. receive a monthly basic salary of Sh.200,000.
2. be provided with a company car for his own personal use of 2,000cc rating.
The company had bought the car for sh.2,000,000.
3. be provided with school fee support for his two children in America. The
company is to spend sh.300,000 per annum for this purpose.
4. have his baggage moved from America to Kenya by Express Cargo who were
paid Sh.1,500,000 to move the four containers of personal effects and the air
tickets for Professor Ujuzi, his wife and children.
5. buy 10 per cent of the share capital of the company at US$50,000
(Sh.3,000,000). For the year ended 31 December 1998, the company paid him
Sh.400,000 (gross) as dividends. Withholding tax for the dividends were paid
by the company.
6. be covered by the company on his life with Fedlife, an American Insurance
Company based in New York. Premium of Sh.60,000 was to be paid for a sum
insured on death of Sh.6,000,000.
Upon arrival in Kenya on 1 August 2005, Professor Ujuzi purchased a house in
Runda Estate using a loan from Housing finance Company of Kenya. The loan
advanced was for Sh.2,000,000 at 25 per cent interest rate. All instalments in the year
were paid. He lived in the house from 1 August 2005 to 31 December 2005. The

wife did not like the house and on 31 December 2005, they sold the house and made
a gain of Sh.400,000.
The wife, Mrs Ujuzi enrolled for the external degree programme at the University of
Nairobi. While there, she was requested to teach American English. The University
paid her a honoraria of Sh.2,000 per hour for 60 hours. She did not receive the
money in cash but the amount was used to offset her fees as an external student.
Required:
(a) (i) Comment briefly on the tax implications of Professor Ujuzi’s return to
Kenya, using the
Income Tax Act, the Customs and Excise Act.
( 4 marks)
(ii) According to the Customs and Excise Act, are the personal effects
chargeable to tax? ( 1 mark)
(b) Analyse the income tax effects of each item in Professor Ujuzi’s employment
contract. ( 6 marks)
(c) Determine the taxable income of Professor and Mrs Ujuzi for the year of
income 1998. ( 7 marks)
(d) Calculate the tax payable by Professor Ujuzi and Mrs. Ujuzi.
( 2 marks)