Putin Mugabe, a Kenyan national, is the Finance Manager of Savage Uganda Ltd (SUL) with effect from 1 December, 2017. He was offered a 3-year contract with an annual basic salary of Shs 84 million in addition to other benefits and payments as follows.

1. 1Overtime allowance Shs 50,000 per extra hour worked. He worked for 20 hours beyond his normal working hours during the month of December 2017.
2. 2Health club annual membership fees Shs 2 million paid by the company for staff at his level of management. The subscription was made as soon as he commenced work on 1 December, 2017.
3. 3School fees for 2 children below the age of 18 years up to a maximum of Shs 2 million per child per annum. In December 2017, the company contributed Shs 800,000 towards the booking of a place for Putin's daughter at Kampala Highlife Secondary School.
4. 4Entertainment allowance Shs 1 million per month. Putin spent his monthly allowance entertaining fellow professionals at his home.
5. 52 security guards at a combined annual cost Shs 15.6 million.
6. 6Lunch for management staff paid for by the company at a nearby
7. restaurant Shs 600,000 per month.
8. 7Medical insurance cover Shs 1 million per annum for self and immediate
9. family members. While on a business travel in Masaka, Putin fell sick and there was no medical facility covered by the insurance in the area. He was treated at a private clinic and was charged medical fees of Shs 450,000. This amount was refunded to Putin on return after lodging in an expense claim with supporting documentation.
10. 8SUL contributes 10% of Putin's monthly salary to NSSF.
11. 9Monthly rental allowance of Shs 3 million. The company rented a house
12. for Putin in Kololo. He is not required to contribute anything towards rent.

10. SUL provides personal loans to staff at reduced interest rates. Putin acquired a loan Shs 930,000 from the company on 15 December, 2017 payable in four months at 5% annual interest charge. The prevailing Bank

of Uganda discount rate was 12% per annum.

During the month of December, 2017 Putin received the following benefits and payments from the company that were not specifically provided for in his contract.

1. (i)Training allowance Shs 300,000 for training company staff in customer care
2. (ii)Relocation allowance from former employment in Kenya to Uganda Shs 3 million.
3. (iii)Christmas gift in form of a brand new Laptop valued at Shs 2 million. Putin later donated this laptop to her daughters' school in support of their computer laboratory fundraising project.
4. (iv)Shs 700,000 for his driving lessons at Kigezi Driving School as soon as he commenced work. A driving license was a prerequisite of the company providing him with a company car.
5. (v)Christmas holiday in Dubai with family Shs 2.5 million.
6. (vi)Kenya Ports Authority (KPA), former of Putin, recently won a suit against
7. him and he was ordered to pay KShs 228,580 to the authority. SUL paid the penalty to KPA in appreciation of Putin's decision to accept the job offer in Uganda.
8. (vii)Shs 300,000 for his monthly subscription fees at Sheraton Swimming Club. This is in addition to the club membership fees paid for all senior staff.

Note: Assume that the exchange rate of the Kenya shilling (KShs) to the Uganda shilling was KShs 1 = UShs 35.

Required:

1. (a)Based on the Income Tax Act provisions, define the term 'employment'.
2. (2 marks)
3. (b)Distinguish between the chargeable income of a resident and that of a non-resident taxpayer.
4. (2 marks)
5. (c)Compute Putin's chargeable income and tax liability for the month of December 2017.

Question 3

(a) Explain any three major categories of supplies upon which a charge of value added tax (VAT) is applied.

(b) (i)

Define the term 'VAT registration'.

(1 mark)

(ii) Expain any two categories of persons that are required to register

for VAT under the VAT Act.

(3 marks)

(iii) Outline any four general requirements for VAT registration.

(4 marks)

(c) Bu-Zuena Interiors Ltd deals in domestic and office furniture and interior decor. During the month of June 2018, they made the following purchases from VAT registered suppliers and have proper tax invoices.

Purchases/Payments:

1. (i)New motor vehicle (Pajero) for the Managing Director Shs 185 million.
2. (ii)4 computers on credit at a total cost of Shs 20.5 million.
3. (iii)Paid telephone bills Shs 10 million during the month.
4. (iv)4 Tata trucks, one for cash and the other 3 on credit. Each truck
5. cost Shs 120 million.
6. (v)Received invoices for electricity amounting to Shs 14.5 million.
7. (vi)Received 2 rental invoices during the month. One invoice Shs 8.5
8. million was in respect of office space and the other Shs 2.5 million was in respect to the rent for the managing director's residential house.
9. (vii)Paid insurance premium to cover the company assets Shs 12 million.
10. (viii)Fuel from Byangwa Petrol station Shs 20 million.

Sales/ receipts:

Made sales Shs 662 million for the month of June 2018.

Included in the sales was a sale of curtains amounting to Shs 100 million that were sold to a company in Kigali, Rwanda.

Note:

All purchases/ payments are VAT inclusive, while sales are VAT exclusive, where applicable.

Required:

Calculate the amount of VAT payable or claimable by Bu-Zuena Interiors Ltd for the month of June 2018.

Question 4

Kakajjo Ltd is in the business of buying and selling produce. The company mainly deals in beans and maize which they buy from local farmers and sell to middlemen and agents. The company's office and area of operation is located in Kiryandongo district.

The company provides transport for all customers who purchase 10 tons or more of the produce.

Their summary of the statement of profit or loss and other comprehensive income for the year ended 30 June, 2018 is as provided below:

Particulars

Revenue

Less cost of sales

Gross profit

Less expenses

Staff costs

Distribution expenses Commissions paid Depreciation of property Other expenses

Net profit

Note 1

2

Shs 'million'

 200 190 100 250 120 

Shs 'million' 2,200

(950) 1,250

(860) 390

Notes:

1 Cost of sales is made up of the following:

Particulars

Purchase of maize and beans Cleaning and packaging costs Packaging materials

Storage costs (hire of warehouses) Purchase of 1 10-ton truck Transport costs

Fumigation expenses

Total

Shs 'million' 550

85 29 66

150 46 24 950

2 Other expenses are made up of the following:

Particulars

Donation to local church

Construction of customer waiting room Repairs and maintenance costs

Other office expenses

Total

Shs 'million' 20

50 26 24

120

1. 3during the year the company purchased a Toyota Land Cruiser for the managing director's use at Shs 100 million and 2 desktop computers at Shs 2 million each
2. 4The tax written down values for the company assets as at 1 July, 2017 were as follows:

Class I Shs '000'

1,500

5 The customer waiting room was first put to use on 2 January, 2018.

Required:

1. (a)Explain the term 'item of eligible property' as described in accordance with the provisions of the Income Tax Act, clearly indicating what items are excluded.
2. (3 marks)
3. (b)Explain the items that are not included in 'capital expenditure' in determining the qualifying cost of an industrial building.
4. (2 marks)
5. (c)Compute Kakajjo Ltd.'s chargeable income and tax payable for the year ended 30 June, 2018.
6. (15 marks) (Total 20 marks)

Class II Shs '000'

Class III Shs '000' 175,300

Class IV Shs '000'

45,050

28,600

Question 5

(a) With reference to the Tax procedures Code Act, explain the following tax terms:

1. (i)Return of income.
2. (ii)Provisional return.
3. (iii)Assessment.

1. (b)Explain any two types of tax assessments.
2. (c)Describe, under the Income Tax Act CAP 340, a taxpayer who is:
3. (i)eligible to file a return of income.
4. (ii)not required to file a return of income.

(d) With examples, define the following types of taxes:

(i) Direct.

(ii) Indirect. (iii) Progressive. (iv) Regressive.

Question 6

(a) Explain the advantages of a takeover to the acquirer.

1. (b)Describe the circumstances under which a partnership business can be dissolved.
2. (7 marks)
3. (c)Explain the contribution of small and medium-size entities (SMEs) to the development of Uganda.