Mr. Babinaga had worked as an accountant for Karo Ltd for twenty years until he retired on 30 June, 2015 aged 53. At the time of his retirement, he had no intention of rejoining formal employment and applied to the National Social Security Fund (NSSF) to be paid his savings. The amount was processed and NSSF paid him Shs 250 million on 12 December, 2015.

Later on, he was personally approached by the human resources manager for Karongo Ltd, who convinced him to take up a three-year contract with the company. He accepted and signed the contract on 30 November, 2015. He commenced duty on 1 December, 2015.

The terms of his contract were:

(i) A monthly salary of Shs 13 million.

(ii) A monthly housing allowance of Shs 2 million.

(iii) A sign-on-bonus of Shs 100 million payable on commencement of the

three-year contract.

(iv) The company will pay his annual subscription to the Accountancy Institute

of Shs 450,000 which is payable in January of each year.

(v) He will receive school fees reimbursement for his three school-going children up to a maximum of Shs 9 million in a school year. By 30 June, 2016, he had paid and been reimbursed school fees of Shs 4.5 million.

(vi) A medical insurance cover for himself, spouse and four children. The company will pay an annual premium of Shs 2 million to the insurance company.

(vii) A company car, a Toyota Prado Land cruiser which he will use on working days. The car will be parked at the office premises on weekends. The car was purchased on 30 November, 2015 at Shs 90 million.

(viii) A domestic servant who will be paid Shs 300,000 per month.

(ix) A monthly entertainment allowance Shs 500,000.

(x) The company paid a Christmas bonus to all staff on 22 December, 2015

which was equivalent to 50% of the monthly salary.

Required:

(a) Compute the chargeable income and tax payable by Mr. Babinaga for the year ended 30 June, 2016.

(13 marks)

(b) Advise Mr. Babinaga on the best option he should take in each of the cases below:

(i) The company had suggested to Mr. Babinaga that they provide him with a company house instead of paying him a housing allowance. The house is in an affluent residential area where the monthly rent is usually Shs 3,000,000.

(5 marks)

(ii) Whether he should agree to take a transport allowance of Shs 400,000 per month instead of being provided with a company car.

Question 2

(a) The East African Customs Management Act (EACCMA) provides guidance on classification and valuation of goods for import duty purposes.

(i) Discuss any two bases that may be used in determining the tariff

applicable to any import of goods entering a partner state.

(2 marks)

(ii) Explain any five documents that may be required in supporting declaration of Customs value.

(5 marks)

(iii) Explain the following terms as per the World Trade Organisation (WTO) Agreement on Customs Valuation:

Transaction value.

Customs valuation.

(3 marks)

(b) Aziza Traders Ltd is an importer of electronics in Kampala and has imported an assortment of electronics from Guangzhou China with the following details:

(i) Commercial invoice from China USD Ex-works (FOB) USD$ 44,400.

(ii) He contracted ML shipping line to transport his container from China

to Kampala Internal Container Deport (ICD) for a total of USD$ 12,420.

The freight invoice from ML indicates the following charges:

Inland charges in China USD$ 780.

Port Charges in Guangzhou USD$ 600.

Ocean freight from Guangzhou to Mombasa USD$ 5,400.

Mombasa to Kampala are USD$ 5,640.

Other additional information:

(i) He paid USD$ 900 to Jusung his agent, in China for negotiating on his behalf with the sellers.

(ii) He also paid USD$ 540 to the company for marine insurance.

(iii) There is no relationship between the two parties and the transaction

has been verified and found to be true and accurate.

(iv) Aziza Traders Ltd was charged:

Taxes

Import Duty (ID)

Excise Duty (ED)

Withholding Tax (WHT)

Value Added Tax (VAT) on imported goods

Rate (%) 25 10 6 18

(v) Assume exchange rate ruling on the transaction date is: USD$ 1 = Shs 3,650.

Required:

(i) Determine the Customs value as provided for in the East African Community Customs Management Act, 2004.

(3 marks)

(ii) Compute the total tax payable using the above information as provided by Aziza Traders Ltd.

Question 5

Uganda is endowed with many mineral resources which include Gold, Cobalt, Copper and Oil amongst others. In 2012, Zion Oil and Gas Company (ZOG) sold her interests in the Albertine oil fields to Willow Uganda Ltd (WUL). In this transaction, ZOG derived capital gains and as per the Ugandan tax laws and practice, this transaction attracts taxes. Both parent companies for ZOG and WUL are registered in the United Kingdom (UK). ZOG objected to the capital gains tax assessments and the matter was referred for arbitration in the international court of arbitration in United Kingdom, as had been provided for in the Production Sharing Agreements (PSA) signed with the Government of Uganda.

The government has signed Production Sharing Agreements (PSA) with several oil companies in the upstream sector for the exploration and production of oil. However, these agreements have continued to be largely confidential and not available for review by the public.

Required:

(a) With examples, explain the fundamental ethical principles that you think should be observed in drafting the Production Sharing Agreements (PSA).

(5 marks)

(b) Explain the responsibilities of the oil and gas companies in the upstream sector to the community and the government.

(5 marks)

(c) You recently attended the oil and gas seminar organised by the Ministry of Energy and Natural resource development. During the seminar, the minister requested accountants to exercise professional judgment and confidentiality when preparing books of accounts for their clients.

(i) Identify the challenges that you may encounter in performing the above duties.

(5 marks)

(ii) Suggest possible measures to address the above challenges.

(5 marks) (Total 20 marks)

TAX RATES

Resident Individuals Income Tax Rates

Small Business Taxpayers Tax Rates

Advanced Taxation - Paper 9

Monthly 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 not exceeding Shs 4,020,000 (Shs 335,000 pm)

10% of the amount by which chargeable income exceeds Shs 2,820,000 (Shs 235,000 pm)

Exceeding Shs 4,020,000 (335,000 pm) but not exceeding Shs 4,920,000 (Shs 410,000 pm)

Shs 120,000 (10,000 pm) plus 20% of the amount by which chargeable income exceeds Shs 4,020,000 (Shs 335,000 pm).

Exceeding Shs 4,920,000 (Shs 410,000 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) 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 Income Tax Rates

Monthly chargeable income

Rate of tax

Not exceeding Shs 4,020,000 (Shs 335,000 pm)

10%

Exceeding Shs 4,020,000 (335,000 p m) but not exceeding Shs 4,920,000 (Shs 410,000 p m)

Shs 402,000 (Shs 33,500 p m) plus 20% of the amount by which chargeable income exceeds 4,020,000 (Shs 335,000 p m).

Exceeding Shs 4,920,000 (Shs 410,000 p m)

(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 p m) 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 p m).

Gross Turnover

Tax Payable

Where gross turnover of a taxpayer exceeds Shs 50 million but does not exceed Shs 75 million per annum.

Shs. 937,500 or 1.5% of the gross turnover, whichever is lower

Where gross turnover of a taxpayer exceeds Shs 75 million but does not exceed Shs 100 million per annum.

Shs 1,312,500 or 1.5% of gross turnover, whichever is the lower.

Where gross turnover of a taxpayer exceeds Shs 100 million but does not exceed Shs 125 million per annum.

Shs 1,687,500 or 1.5% of gross turnover, whichever is the lower.

Where gross turnover of a taxpayer exceeds Shs 125 million but does not exceed Shs 150 million per annum.

Shs 2,062,500 or 1.5% of gross turnover, whichever is the lower.

25 August, 2017

Page 12 of 13

Advanced Taxation - Paper 9 Small Business Taxpayers Tax Rates where the gross turnover is below Shs 50 million

(i) Kampala City and Divisions of Kampala