Answer all questions

10. 11. 12. Entitlement to register with the National Social Security Fund (NSSF) of which she will contribute 5% and the employer 10% of her basic salary. Entitlement to a company car which was bought for Shs 150,000,000 from Toyota Uganda. The NGO gave her a salary loan Shs 30,000,000 on 1 September, 2016 at a negotiated interest rate of 10% per annum for three years. The statutory rate as at 1 July, 2016 was 18%. The company also provides her with security guards whom they pay Shs 3,600,000 per annum. She is entitled to lunch that is provided by the NGO. This lunch is believed to be enioyed by everyone in the organisation. The NGO values every plate of food at Shs 10,000. Other information: 1. She enrolled for a postgraduate diploma in project management at UKL University and she pays Shs 2,500,000 per semester. 2. She is a chairperson of the Finance Committee of Life Africa and she was paid Shs 2,500,000 for her participation during the year ended 31 December, 2016. Required: (a) Advise Lydia on her chargeable income and tax payable for the year ended 31 December, 2016. Comment why you have omitted some specific transactions. (14 marks) (b) Explain the circumstances where a benefit is derived in respect of employment income. (3 marks) (c) Explain any three differences between a contract for service and a contract of service. (3 marks) (Total 20 marks) 22:16 . . LTE Mombasa 1 /C'871 Nairobi 137,143 Nairobi 105,714 7 of 12 Total 521,428 Rent expenses incurred per month: KShs Water and electricity 3,429 Property & ground rates 2.714 Cleaning & compound maintenance 5,000 Security & supervision 10,000 General repairs & maintenance 10,000 Note: Assume the exchange rate ruling on the transaction date was 1 KShs = 35 UShs 2. Fixed deposit interest Shs 750,000 from DU Bank (in Uganda). Rev. Ojakol deposited Shs 5 million in his fixed deposit account with DU Bank in January, 2016. 1 December, 2017 Page 6 of 12 Advanced Taxation - Paper 9 3. Shs 1,840,000 interest on three months treasury bills by Bank of Uganda. Rev. Ojakol purchased treasury bills worth Shs 12.5 million in March, 2016. 4. Dividends Shs 12.5 million from Stab Bank share investment. Required: Determine Rev. Ojakol's total tax liability for the year ended 31 December, 2016. (8 marks) Total (20 marks) Question 3 Mondi operates three big supermarkets in India under the name 'Quick Save' He opened a supermarket in Uganda located in the suburbs Kampala in Ntinda. They deal in multiple goods and services. Mondi was registered for VAT effective 1 January, 2017 and deals with VAT registered taxpayers only. During the month of January, 2017 Mondi presented to you a summary of his transactions as follows: Purchases (VAT inclusive where applicable) Date Transaction Shs '000' 1 Purchased sugar 25,000 Purchased bananas 11,500 Purchased exercise books 24,500 Purchased laptop computers 35,000 12 Installed CCTV in the supermarket 30,000 15 Purchased insecticides 11,000 Purchased baking powder 12,500 25 Prepaid rent for 6 months 15,000 Sales (VAT exclusive where applicable) Date Transaction Shs '000' 6 Sold sugar 12,000 Sold bananas 1, 100 Sold exercise books 2,500 8 Sold 5 laptop computers 5,000 12 Sold sugar to Mukasa who promised to pay by 31 January 2, 100 20 Sold insecticides 3,300 1 December, 2017 Page 7 of 12 Advanced Taxation - Paper 9 Required: (a) Advise Mondi on the: (i) VAT pays Pary, 2017.Question 1 Twefuge Bank Uganda Limited (TBUL) operates commercial banking business in Uganda. TBUL. which is listed on the Uganda Securities Exchange, is regulated by the Bank of Uganda. the country. It runs a network of forty branches spread throughout Their statement of profit or loss and other comprehensive income for the year ended 31 December, 2015 was as follows: Notes Shs 'million' Interest income 1 200.000 Interest expense (23,000) Net interest income 177.000 Fees 3 commission income 72,500 Fees 3 commission expenses (1,050) Net fees & commission income 71,450 Net trading income 2 43,000 Other operating income 3 133 Total operating income 291.633 Impairment charge for credit losses 4 (16.3001 274.833 Employee benefits & expenses (60,000) Depreciation 3 amortisation (9,600) Other operating expenses 5 MM Profit before tax M Notes: 1. Interest income comprises of the following amounts: Shs 'million' Treasury bills 29.000 Treasury bonds 3.500 Loans & advances to customers 150.000 Loans 3 advances to banks 17,500 M Required: (a) Advise Mondi on the: (i) VAT payable or claimable for the month of January, 2017. (8 marks) (ii) VAT treatment of the transaction where Mukasa, one of his major clients bought sugar Shs 2,100,000 and promised to pay by 31 January 2017 but failed to fulfill his promise (VAT on bad debts). (4 marks) (iii) differences between cash and accrual method of accounting. (2 marks) (b) Mondi would like to link his point of sales server to one of the branches based in India. His information technology (IT) expert based in India has advised him that with this concept, he can monitor the sales from the Ugandan branch even when he travels to India. The estimated price for this service is Shs 25,000,000. The IT expert has indicated that he can do this job without necessarily coming to Uganda. Required Advise Mondi on the VAT implications of this transaction. (6 marks) (Total 20 marks) Question 4 Lydia is a young accountant who was given a five year contract with Life Africa, a Christian based Non-Governmental Organisation (N60). The contract started on 1 January, 2016 and is expected to run until 31 December, 2020 with a possibility of renewal. The N60 provides solar power to the needy communities in northern and eastern Uganda and it is tax exempt for income tax purposes. The details of the contract are as follows: 1. Basic salary Shs 8,500,000 per month payable in her bank account. 2. Over-time pay for working on weekends Shs 200,000 per day worked. She worked for 24 days on weekends during the year. 3. Life insurance at Life Assurance Limited Shs 4,500,000 per annum for self and her dependants. 4. Cost of living allowance of 0.5% of basic pay payable every January of the following year. Local service tax paid Shs 100,000 Accommodation allowance Shs 3,500,000. She chose to reside in the suburbs of Bugolobi. 7. Shs 800,000 for travel to the field for official duties. She travelled six times during the year. 9'5" Net trading income comprises of the following amounts: Shs 'million' Unrealised gain on foreign exchange trading 10.000 Debt securities trading 33,1103 M Other operating income comprises of the following: Shs 'million' Profit on disposal of equipment 83 Rental income 100 & Impairment charge for credit losses: Shs 'million' Specific impairment provision 15,600 General impairment provision 2.800 Recoveries of loans previously written off (1.500) M Other operating expenses: Note Shs 'million Marketing a advertising (a) 8,000 Auditor's remuneration 350 Other professional fees 13.000 Ottice running expenses 12.000 Security expenses 8,000 Information technology expenses (b) 25.000 Directors' tees and expenses 280 Insurance 4,500 Training costs (c) 12.000 VAT on imported services 7,500 Renovation of rental premises 20 Other operating expenses 13.350 M (a) Included in the marketing and advertising expenditure is an amount of Shs 500 million that was paid towards the construction of the headquarters of the Patriotic Movement Party (PMP). a political party with presence throughout the whole country. (b) Included in the information technology expenses is an amount of Shs 10 billion that was paid to a consultancy firm based in South Question 5 (a) Demonstrate your understanding of gains and losses on disposal of assets as per the provisions of the Income Tax Act. (3 marks) (b) Explain the circumstances under which a taxpayer is treated as having disposed of an asset. (3 marks) (c) Explain any three cases where a transaction does not give rise to a gain or loss for tax purposes on the disposal of an asset by a taxpayer. (3 marks) (d) Good Life Uganda Lid, an electronics entity started operations in Uganda on 1 January, 2016. During the year it acquired the following assets: Asset Shs '000' 5 computers 15,000 27-seater van 13,000 5-ton pick-up 18,000 60-seater van 75,000 Tractor 80,000 Building-office block 50,000 Office furniture and fittings 25,000 2-ton pick-up 30,000 Additional information: 1 . On 31 October, 2016 the company acquired a set of office furniture at Shs 4,000,000 and a second-hand printer at Shs 990,000/. 2 . On 15 November, 2016 the company disposed of one of the computers at Shs 2,000,000/. In return the company purchased a new 3-ton truck at Shs 5,800,000. Required Prepare a wear and tear schedule for Good Life Uganda Ltd, as at 31 December, 2016. (11 marks) Total (20 marks)(6') Required: (i) Explain the provisions of the Tax Procedures Code (TPC) Act. 2014 relating to penal tax for understating provisional tax estimates for a corporate taxpayer. (5 marks) (ii) Compute the penal tax. if any, payable by TBUL for understatement of provisional tax payable for the year ended 31 December, 2015. (4 marks) Included in the impairment of loan provisions made during the year 2015 is an amount of Shs 10.4 billion relating to Byangala Construction Company Limited (BCCL), a real estate development company. BCCL borrowed Shs 12 billion on 1 January, 2015 with a 36 month repayment period. However, the company faced financial difficulties after paying only 5 instalments and has since halted the construction processes. According to the Bank of Uganda prudential norms 50% of the outstanding loan should be classified as doubtful. However. the bank has got information that the maior shareholder of the company who owns 90% of the shares had diverted some of the loan amounts to other personal ventures, which have failed and he has filed for bankruptcy. It is on the basis of that fact of bankruptcy that the bank has decided to write off the whole outstanding loan amount as a provision for impairment. Required: (i) Set out the circumstances under which a taxpayer may be allowed a deduction for a bad debt written off during the year in determining his! her chargeable income. (4 marks) (ii) Explain the term 'bad debt' in relation to a financial institution as per the provisions of the Income Tax Act. (2 marks) (iii) Advise BCCL on the income tax implications of the transaction described in (d) above. (5 marks) (Total 40 marks) RATES OF TAX Resident Individuals Chargeable income Rate of tax Not exceeding Shs 2,820,000 (Shs 235,000 pm) Nil Exceeding Shs 2,820,000 (Shs 235,000 pm) but 10% of the amount by which chargeable income not exceeding Shs 4,020,000 (Shs 335,000 pm) exceeds Shs 2,820,000 (Shs 235,000 pm) Exceeding Shs 4,020,000 (335,000 pm) but not Shs 120,000 (10,000 pm) plus 20% of the amount by exceeding Shs 4,920,000 (Shs 410,000 pm) which chargeable income exceeds Shs 4,020,000 (Shs 335,000 pm). (a) Shs 300,000 (Shs 25,000 pm) plus 30% of the amount by which chargeable income exceeds Shs 4,920,000 (Shs 410,000 pm) and (b) Exceeding Shs 4,920,000 (Shs 410,000 pm) Where the chargeable income of an individual exceeds Shs 120,000,000 (Shs 10,000,000 pm) an additional 10% charged on the amount by which chargeable income exceeds Shs 120,000,000 (Shs 10,000,000 pm). Non-resident Individuals Chargeable income Rate of tax Not exceeding Shs 4,020,000 (Shs 335,000 pm) 10% Exceeding Shs 4,020,000 (335,000 pm) but not Shs 402,000 (Shs 33,500 pm) plus 20% of the exceeding Shs 4,920,000 (Shs 410,000 pm) amount by which chargeable income exceeds 4,020,000 (Shs 335,000 pm). Exceeding Shs 4,920,000 (Shs 410,000 pm) (a) Shs 582,000 (Shs 48,500 pm) plus 30% of the amount by which chargeable income exceeds Shs 4,920,000 (Shs 410,000 pm) and (b) Where the chargeable income of an individual exceeds Shs 120,000,000 (Shs 10,000,000 pm) an additional 10% charged on the amount by which chargeable income exceeds Shs 120,000,000 (Shs 10,000,000 pm). Small Business Taxpayers Gross Turnover Tax Payable Where the gross turnover of the taxpayer exceeds Shs 937,500 or 1.5% of the gross turnover, whichever Shs 50 million but does not exceed Shs 75 million is lower per annum. Where the gross turnover of the taxpayer exceeds Shs 1,312,500 or 1.5% of the gross turnover, Shs 75 million but does not exceed Shs 100 whichever is the lower. million per annum. Where the gross turnover of the taxpayer exceeds Shs 1,687,500 or 1.5% of the gross turnover, Shs 100 million but does not exceed Shs 125 whichever is the lower. million per annum. Where the gross the turnover of the taxpayer Shs 2,062,500 or 1.5% of the gross turnover, exceeds Shs 125 million but does not exceed Shs whichever is the lower. 150 million per annum.Question 2 (a) Explain what you understand by the following terms as used in the Income Tax Act Cap 340 laws of Uganda: (i) 'Property income'. (4 marks) (ii) 'Dividend'. (4 marks) (b) The Income Tax Act provides for circumstances under which withholding tax on the payment of dividends to a resident individual is considered a final tax. Required: Discuss any four implications of withholding tax as a final tax in relation to the above statement and in accordance to the Act. (4 marks) (c) Rev. Ojakol Alphonse is an enterprising Ugandan resident with a number of income sources. During the year ended 31 December, 2016 he earned the following income: 1 . Rental income from several rented properties in Kenya as per the details below: Property location Monthly rent KShs Nairobi 100,000 Kisumu 50,000 Mombasa 128,571 Nairobi 137,143 Nairobi 105,714 Total 521,428 Rent expenses incurred per month: KShs Water and electricity 3,429 Property & ground rates 2,714 Cleaning & compound maintenance 5,000 Security & supervision 10,000 General repairs & maintenance 10,000 Note: Assume the exchange rate ruling on the transaction date was 1 KShs = 35 UShs 2. Fixed deposit interest Shs 750,000 from DU Bank (in Uganda). Rev. Ojakol deposited Shs 5 million in his fixed deposit account with DU Bank in January, 2016.Africa to provide and connect a new IT software system in the newly opened branch in Mbarara, South Western Uganda. (c) Training costs include an amount of Shs 120 million relating to the payment of school fees for employees' dependants. The amount has not been treated as a taxable benefit to the employees. 6. Property, plant and equipment: (a) The bank bought and put to use the following items of property during the year ended 31 December, 2015 Shs 'million' 1 bullion truck 500 100 money counting machines Shs 8 million each 800 10 ATM machines Shs 28,000,000 each 280 50 desktop computers Shs 5,000,000 each 250 70 office chairs Shs 750,000 each 52.5 70 office desks at 1,800,000 each 126 2.008.5 (b) The tax written down values as at 1 January, 2015 were as follows: Class Shs 'million I 5,600 8,000 III 9,080 IV 23,000 (c) 50 Desktop computers whose book value was Shs 25,000,000 were sold to staff at Shs 108,000,000. 7. The bank had an assessed tax loss brought forward of Shs 35,850,400,000. Required: (a) Compute the chargeable income and tax payable for TBUL for the year ended 31 December, 2015. (13 marks) (b) Compute the capital allowances due to TBUL for the year ended 31 December, 2015. (7 marks) (c) TBUL had paid provisional tax of Shs 5 billion for the year ended 31 December, 2015 on 29 December, 2015. They also filed their return on 30 May, 2016 and paid the balance of the tax and any penalties calculated on the same date