Question 1 James Tomusange is one of the most successful entrepreneurs in Masaka town with business interests in several sectors. He set up TJ Enterprises to engage in the business of distributing malaria drugs and also tap into the rental income opportunities available in the real estate sector. Distribution of malaria drugs started in April, 2017. TJ Enterprises obtained a loan of USD 1 million in June, 2016 from Africa Development Bank under the housing finance programme to set up modern and affordable residential units in Masaka town. These residential housing units were completed by the end of March, 2017. Prior to completion, TJ Enterprises received early bookings for the residential units especially from corporate clients in Masaka that were yearning for housing with a modern touch. With additional financing from the shareholder (James Tomusange), TJ Enterprises purchased a shopping arcade effective 1 January 2017 in Masaka town. The shopping arcade had been foreclosed and disposed of by one of the commercial banks. The arcade initially belonged to a customer of the bank who had failed to re-pay a loan he had secured against it. The arcade barely had tenants and this prompted TJ Enterprises to close it for renovation in January, 2017. Renovations involved painting, cleaning and installation of air conditioners. Renovations were completed in March, 2017. TJ Enterprises started getting tenants in April, 2017. In April, 2017 TJ Enterprises rented an office on a property owned by MK Properties Ltd. These office premises were required for carrying out administration related activities, such as finance functions, which cater for the three business lines of TJ Enterprises. Recently, a new manager was assigned to the Uganda Revenue Authority (URA) Masaka office. On his way for a workshop, he noticed and admired the TJ Enterprises residential housing units. The manager is not sure about the VAT compliance status of TJ Enterprises. He has asked you, as the URA officer in charge of tax audits in Masaka, to check the company's compliance with the VAT Act. You have checked the URA records and noted that TJ Enterprises is not registered for VAT. The accountant for TJ Enterprises has explained to you the company's history, nature of business, revenue streams and purchases.

The accountant has also provided you with the following information: Revenue streams for 2017: Month April May June July August September October November December Purchases: Sale of malaria drugs Shs '000' 3,500 4,300 10,000 10,500 16,000 200,000 104,000 105,000 100,000 Rental income from residential units Shs '000' 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 shopping arcade Shs '000' 3,000 8,000 9,000 11,000 16,000 16,000 16,000 16,000 16,000

1. In March, 2017 TJ Enterprises paid Q-designs, a company based in Kenya Shs 20 million for interior design services relating to the residential units. 2. In January, 2017 TJ Enterprises incurred VAT of Shs 3 million on air conditioners and VAT of Shs 2 million on painting and cleaning services related to the renovation of the shopping arcade. 3. MK Properties invoices TJ Enterprises VAT exclusive amount of Shs 500,000 with VAT of Shs 90,000 per month, effective February 2017. 4. In May, 2017 TJ Enterprises purchased a desktop computer for the accountant at Shs 1 million inclusive of VAT. 5. TJ Enterprises recruited Francis Golola as the real estate manager of the company. In December, 2017 TJ Enterprises purchased a saloon car at Shs 7 million exclusive of VAT to facilitate Golola's movements while performing duties for the company. 6. In December, 2017 the company purchased an Apple laptop computer at Shs 3 million inclusive of VAT and disposed of the desk top computer at Shs 600,000. 7. In December, 2017 MTN invoiced TJ Enterprises Shs 500,000 inclusive of VAT for data. The data is used for the company's communication needs.

Additional information: You have checked the company's records and noted that other than the services received from Q-designs, all purchases identified above were from VAT registered persons who issued proper tax invoices.

Required:

(a) Examine whether TJ Enterprises is required to register for VAT and if so, the effective date of registration. (10 marks) (b) Determine the: (i) Output tax due, if any. (10 marks) (ii) Input tax claimable, if any, on the purchases made. Comment on the VAT incurred on items purchased by TJ Enterprises for the year 2017. (20 marks) (c) Advise the URA manager on the VAT payable/ claimable, if any, by TJ Enterprises. (5 marks) (d) From your examination of the company's VAT compliance status, advise the URA manager on the penalty for late registration, if any.

Question 2

(a) Safe Waste Ltd (SWL) is a company based in Hoima specialising in treatment of waste generated from oil and gas upstream activities. Due to its extensive experience and high tech deployed in the treatment of waste, SWL was contracted by the upstream oil and gas companies; TOTAL E & P, Tullow and CNOOC, to treat the waste generated from their activities in the Albertine region. On a monthly basis, SWL invoices all the three clients a combined amount of Shs 1 billion plus VAT of Shs 180 million. Given the specialised nature of the services, SWL hired a South African company to provide consultancy services worth Shs 50 million per month. Additionally, during the month of January, 2018 the company had the following transactions: 1. A law firm invoiced the company Shs 15 million inclusive of VAT for legal services. 2. A transporting company charged Shs 40 million exclusive of VAT for transport services. 3. The company disposed of a company car Shs 10 million inclusive of VAT to one of the employees. 4. The company had hotel accommodation bills of Shs 4 million exclusive of VAT for the managing director while in Kampala for a business meeting. Note: All the invoices received from suppliers were proper tax invoices.

Required:

With reference to the VAT Act, assess the VAT payable/ claimable by Safe Waste Ltd for the month of January 2018. (15 marks) (b) Mukisa Enterprises Ltd deals in wheat. The company's main customers are bakeries. The company purchases the wheat from local farmers and imports some depending on the needs of its customers in Uganda. The company is VAT registered.

Required:

Advise Mukisa Enterprises on the VAT treatment of the following transactions:

(i) Imported wheat. (4 marks) (ii) Sale of wheat to bakeries in Uganda. (6 marks) Question 3

Okema Holdings Ltd (OHL) is one of the leading distributors of cement in Uganda. OHL supplies cement to customers in Uganda, Rwanda and South Sudan. The company purchases cement from Hima Cement Ltd (located in western Uganda), which is either transported directly to the customer or delivered to the company's warehouse for storage. The company owns trucks which are used to transport the cement. Customers are charged for the cement sold to them plus a transport fee depending on the location of the customer. As a leading distributor of cement, URA registered OHL for VAT. Mr. Okema, the director of the company, has done an analysis of his business model and noted that the business can achieve greater efficiencies and be more competitive if the transportation business is separated from the cement wholesale business. To implement this, he plans to set up a new company, Okema Transporters Ltd. Selected trucks (especially those used to deliver cement to customers in Rwanda and South Sudan plus customers outside Kampala) will be transferred from Okema Holdings Ltd to the new company, Okema Transporters Ltd. These trucks are valued at about Shs 3 billion. At this planning stage, Mr. Okema is worried about the VAT that could arise as a result of transferring the trucks to the new company. Given the high value of the proposed transaction, Mr. Okema has engaged you as a certified tax advisor to assist him mitigate the VAT risks that could arise from the transaction.

Required:

With reference to the VAT Act, advise Mr. Okema on the requirements and steps the company should take to mitigate the VAT risks that could arise from the proposed transaction. Question 4

The Private Sector Foundation Uganda has organised a seminar for young entrepreneurs. Prepare presentation to the entrepreneurs guided by the following:

(a) Taxable value of an import of goods. (b) Currency conversion. (c) International Agreements. (d) Public International Organisation. (e) Burden of proof.