Question 1 (a) The general rule of deductibility of expenditure is described in the Income Tax Act of Uganda as all expenditure incurred "wholly" and "exclusively" for the production of the income sought to be taxed in that year of income. Required: Explain the principles used in determining whether expenditure has been incurred wholly and exclusively in the production of business income. (5 marks) (b) Runyungu Uganda Led (RUL) is a company based in Kampala; Uganda.RUL is owned by Mr. Mbayo Sali and deals in manufacturing of electronic items. The following is the company income statement for the year ended 30 May 2015. Shs Shs Sales 500,000,000 Cost of sales 200,000,000 Gross profit 300,000,000 Interest on deposit - Bank 3,500,000 Gross rent income 2,500,000 Gross operating profit 306,000,000 Expenses Commissions 3,500,000 Salaries and wages 30,000,000 Interest paid 11,600,000 Depreciation on machinery 20,000,000 Directors' fees and expenses 40,000,000 General expenses 110,000,000 Rent and rates 4,800,000 Provision for bad debts 570,000 Electricity, water and telephone 10,000,000 Dividends (Note 1) 25,000,000 Income tax 42,000,000 Business loss (Note 2) 29,000,000 326,470,000 Net Profit/(Loss) (20,470,000)Question 2 Mr. Kintu is the Financial Manager of Sula (U) Ltd. His employment terms are as follows. Annual basic salary Shs 42,000,000 Medical allowance Shs 150,000 per month Mileage allowance Shs 300,000 per month The company provides a house to Mr. Kintu whose market rent is Shs 850,000 per month. Mr. Kintu is entitled to annual leave of 30 working days per year. His employment terms are such that in the month of taking leave, he is paid a leave allowance equivalent to one-month basic salary net of taxes. During the year ended 30 June 2015, Sula (U) Led remitted Pay As You Earn (PAYE) of Shs 10,080,000 to Uganda Revenue Authority (URA) in respect to Mr. Kintu's employment income. In March 2015, Mr. Kintu took his annual leave and during that period he got a management consultancy contract in Kigali which he completed within 4 weeks. He was paid US Dollars 4,000 net of withholding tax. The withholding tax rate on management fees in Rwanda was 20%. The average exchange rate for the month of March was Shs 3,400 for 1 US Dollar. Mr. Kintu is also a partner in Jim & Co Certified Public Accountants. The other partners in Jim & Co are James O. and Owiny B. The profit sharing ratio of Mr. Kintu to James and Owiny is 3:2:1. During the year ended 30 June 2015, the firm made taxable profits of Shs 96,000,000 before taking into account capital allowances of Shs 60,000,000. The partnership paid salaries of Shs 10,000,000, Shs 3,000,000 and Shs 5,000,000. to Mr. Kintu, James and Owiny respectively which were recorded in the books; However, PAYE was not paid. Required: Advise Mr. Kintu on the following: (a) The Partnership taxable profit / tax losses attributable to each partner of Jim & Co Certified Public Accountants for the year ended 30 June 2015. (10 marks) (b) The amount of outstanding tax payable by Mr. Kintu for the year ended 30 June 2015, if any. (15 marks) (Total: 25 marks)Question 3 Under Section 16 of the Tax Procedures Code Act (TPCA) 2014, every person shall file with the commissioner not later than six months after the end of each year of income a return of income for the year of income". Required: (a) Explain the consequences of filling returns after due date. (5 marks) (b) Describe the circumstances under which extension of time to file a return of income may be granted by the commissioner. (5 marks) (c) Explain the circumstances under which a person is not required to file returns of income. (15 marks) (Total: 25 marks) Question 4 (a) Governments design tax systems to facilitate collection of government revenue, which is required to fund government expenditure. Required: Explain the factors that governments should consider in designing proper tax systems. (12 marks) (b) Explain the economic or other reasons why a government might want to have a withholding tax regime. (8 marks) (c) You have recently been appointed as the tax advisor of Konyo Led, a Ugandan registered company. Konyo Led contracted Bay Ltd, a Ugandan company, to supply it with legal consultancy services. Bay Led was not withholding tax exempt during the period 1 January 2015 to 30 June 2015. Konyo Led paid Bay Limited Shs 156,000,000 (exclusive of VAT) for the legal consultancy services on 30 June 2015, however, no tax was withheld or remitted to URA on this transaction until 30 September 2015. Required: Advise Konyo Led on the amount of total tax liability payable as at 30 September 2015. (5 marks) (Total 25 marks)Question 5 (a) Suppose Firm "A' sells its output (purchased using no material inputs) for a price of Shs 1,000,000 (excluding taxes) to Firm "B', which in turn sells its output for Shs 4,000,000 (again excluding tax) to final consumers. Assume the VAT rate is 18% and; that Firm A and Firm B are taxable persons. Required: Compute; (i) VAT remittances to the Government from each firm above (5 marks) (ii) Explain, with examples, the difference between exempt supplies and zero rated supplies. (4 marks) (b) ABC (U) Limited was comprehensively audited by Uganda Revenue Authority (URA) for the year ended 31 December 2015. The audit was concluded after 3 months and URA raised an assessment for corporation tax and PAYE amounting to Shs 2.575 billion including penalties and interest. ABC (U) Limited was dissatisfied with the finding of the audit and intends to challenge the audit outcome. Required: Explain the process of objections and appeals as provided for in Part VII of the Tax Procedure Code Act (2014) (16 marks) (Total 25 marks)