1. The problem involves explaining four principles of taxation: equity, productivity, diversity, and simplicity, then computing taxable income and tax payable for Elio Meta using given income and benefits. 2. Principles of Taxation: 1. Equity: Taxes should be fair, meaning taxpayers with similar ability to pay should pay similar amounts (horizontal equity), and those with greater ability should pay more (vertical equity). 2. Productivity: The tax system should raise enough revenue to fund government functions without undue hardship. 3. Diversity: Tax systems should rely on various sources and types of taxes for stability and fairness. 4. Simplicity: Taxes should be easy to understand and comply with to reduce compliance costs and errors. 3. Compute Taxable Income for Elio Meta (Year ended 31 Dec 2022): - Basic Salary: $102,500 \times 12 = 1,230,000$ - Gifts: $60,000$ - Car Benefit: Monthly rental $30,000 \times 12 = 360,000$ - Fuel Allowance: $12,500 \times 12 = 150,000$ - Housing Benefit: Monthly rent $50,000 \times 12 = 600,000$ - Furniture Benefit: 20% of furniture cost $240,000 \times 0.2 = 48,000$ - Life Insurance Premium: $72,000$ - Per Diem: $5,750 \times 5 = 28,750$ - Medical Bills: $675,000$ - Employer's Contributions to Registered Pension: (Equal to employee contribution, $22,500 \times 12 = 270,000$) - Cook and Security Guard Salaries: $9,000 + 12,000 = 21,000$ per month; yearly $21,000 \times 12 = 252,000$ - School Fees: $240,000$ (not debited in company's books, but likely taxable as a benefit) Deduct Employee Pension Contributions: $22,500 \times 12 = 270,000$ Calculation: Total Benefits and Income = Basic Salary + Gifts + Car Benefit + Fuel Allowance + Housing Benefit + Furniture Benefit + Life Insurance + Per Diem + Medical Bills + Employer Pension Contributions + Cook and Security + School Fees $$ = 1,230,000 + 60,000 + 360,000 + 150,000 + 600,000 + 48,000 + 72,000 + 28,750 + 675,000 + 270,000 + 252,000 + 240,000 = 3,985,750 $$ Less Employee Pension Contributions: $$ 3,985,750 - 270,000 = 3,715,750 $$ Taxable Income = Sh. 3,715,750 4. Compute Tax Payable using Kenya PAYE rates (2022): Rates assumed (for illustration): - First 288,000 @ 10% - Next 100,000 @ 15% - Next 100,000 @ 20% - Next 100,000 @ 25% - Balance over 588,000 @ 30% Steps: Tax = $$ 288,000 \times 0.10 = 28,800 $$ $$ 100,000 \times 0.15 = 15,000 $$ $$ 100,000 \times 0.20 = 20,000 $$ $$ 100,000 \times 0.25 = 25,000 $$ Balance = 3,715,750 - 588,000 = 3,127,750 $$ 3,127,750 \times 0.30 = 938,325 $$ Total Tax: $$ 28,800 + 15,000 + 20,000 + 25,000 + 938,325 = 1,027,125 $$ 5. Final answers: - Taxable Income = Sh. 3,715,750 - Tax Payable = Sh. 1,027,125