Question 1

Luzige Senior Secondary School Limited (LSSL) is a private school offering secondary education. The school, whose year end is 30 June, is located in Buikwe district. During the month of June 2018, the Board of Directors held a strategic management meeting to move the school to a different level. One of the discussion points rotated around tax implications, though none of the directors had an in-depth knowledge of taxation.

The managing director had written to you requesting for advice on the tax implications of the following:

1. (i)The Board acted retrospectively approving a cost of Shs 120 million for an acre of land where the main hall was constructed at a cost of Shs 730 million and put into use on 1 July, 2017. Included in the construction costs was Shs 75 million paid to squatters who had stayed on the land for over 20 years. The school also paid Shs 10 million to Mr. Bamwe who sits on the town council committee that approves construction plans.
2. (4 marks)
3. (ii)The school management's proposal to buy a new car for the head teacher was approved by the Board since his old car was always having mechanical problems. The new car (Toyota Rav4, 2010) was purchased at cost of Shs 75 million on 1 September, 2017 and the old car (Toyota Corolla) was later disposed of at Shs 5 million. Management purchased kitchenware and equipment amounting to Shs 130 million having realised that the school's population was increasing.
4. (7 marks)
5. (iii)In September 2017, management's proposal to sell part of the school's land was approved by the Board. The land had been acquired at a cost of Shs 20 million on 1 July, 2014. On the land was a school dormitory whose construction was completed and put to use on 1 July, 2015 at a cost of Shs 120 million. The land and buildings were sold for Shs 215 million during the year.
6. (7 marks)
7. (iv)During the board meeting, the head teacher presented a list of school fees defaulters totalling to Shs 36 million who had been outstanding for over 18 months. Most of the defaulters had since left the school. The school's management policy on bad debts is to write off bad debts which are 12 months old. The Board approved the bad debts write off.
8. (2 marks)
9. (v)The Board approved an increase in the authorised share capital from Shs 1 billion to Shs 2 billion. Stamp duty of Shs 15 million was paid for the

increase by the school and expensed in the company's administrative expenses for the year.

(2 marks)

(vi) Having received a report on previous year's financial performance of the school indicating a profit of Shs 260 million, the Board approved an investment of Shs 200 million in treasury bills. During the year ended 30 June, 2018 the school earned interest on treasury bills of Shs 10 million.

Additional information:

Tax written down values as at 1 July, 2017. Shs '000'

Class I Class II Class IV

Required:

21,000 15,600 80,000

Advise the school's managing director on the income tax implications of the above five scenarios for LSSL.

Include workings for your answer.

Question 2

(Total 25 marks)

Mr. McCain is an employee of an American multinational company, Priso Company, which has operations in East Africa. McCain is responsible for overseeing Priso Company's subsidiaries in the East African region. Following the restructuring of Priso Company's subsidiary company (Silo Limited) in Uganda, McCain has had to travel frequently to work in Uganda. During the year ended 30 June, 2018 Mr. McCain earned an annual salary of United States dollars (USD) 120,000 for his regional responsibilities. He spent 40% of his working time in Uganda, 30% in Kenya and 30% in Tanzania. McCain also owns rental properties in the USA from which he earned USD 20,000. While in Uganda, he disposed of shares that he owned in another private company in the USA and made a gain of USD 17,000. Given McCain's senior position in the company, he was entitled to share options that vest after a 3 years period of continuous employment. It was during his working days in Uganda that Mr. McCain's share options vested having fulfilled the vesting conditions and the shares were issued to him. The value of the issued shares was USD 10,000. (Assume the rate of USD 1: Shs 3,600 and that no tax was paid to a foreign government in respect of the above incomes).

Required:

1. (a)Compute Mr. McCain's income tax payable in Uganda for the year end 30 June, 2017 if:
2. (i)He spent 150 days in Uganda. (6 marks)
3. (ii)He has a permanent home in Uganda. (14 marks)
4. (b)Explain to Mr. McCain the relevance of residence or non-residence status

in relation to taxation of incomes of persons in Uganda.

Question 3

(5 marks) (Total 25 marks)

Kasumba Uganda Limited (KUL) is in the business of manufacturing soap. The company is registered for value added tax (VAT). The following were the company's transactions for the month ended 31 December, 2017:

1. Received an invoice for electricity bills of 7.2 million.
2. Purchased a printer and its accessories Shs 2.5 million.
3. Ordered and purchased for a Toyota double cabin pick-up truck Shs 45
4. million.
5. 7 December; purchased furniture Shs 17 million.
6. 21 December; exported soap Shs 160 million to South Sudan.
7. Imported materials for soap manufacturing Shs 400 million.
8. Purchased legal services Shs 12.6 million from a law firm to settle a land
9. dispute between the general manager and his neighbour, Mr. Magala.
10. 17 December; cleared an invoice of staff meals for the same month Shs
11. 7.2 million.
12. Received an invoice Shs 1.8 million from Sheraton Hotel relating to meals
13. the managing director had with potential customers.
14. Gave out 5 cartons of soap as Christmas gifts to staff. One carton is sold
15. for Shs 60,000.
16. Gave out soap samples to potential customers in a new market worth Shs
17. 26.5 million.
18. Was invoiced by Super Telecom Uganda Limited for airtime used during
19. the month Shs 4.8 million.
20. Received security deposits Shs 200 million from customers. Security
21. deposits are refundable at the end of business relationship with the
22. company.
23. A customer returned soap worth Shs 25 million due to manufacturing
24. defects.
25. Wrote off a 3-year old bad debt Shs 36 million relating to a customer after
26. meeting all the necessary procedures for recovery.

Note: Amounts relating to sales are VAT exclusive where applicable and amounts relating to purchases are VAT inclusive.

Required:

1. (a)Advise KUL on the VAT implications of each of the above transactions.
2. (15 marks)
3. (b)Describe what you understand by the term 'taxable value of a taxable supply'.
4. (8 marks)
5. (c)Explain what constitutes mixed supplies under the VAT Act Cap 349.
6. (2 marks) (Total 25 marks)

Question 4

Mr. Kigude is a taxpayer dealing in general merchandise in Hoima, western Uganda. His business has expanded drastically to the size of making an annual turnover of over Shs 500 million. His business associates have advised him that in this era, he is supposed to keep proper books of account to support his business' tax returns.

Required:

As a tax advisor, you have been approached by Mr. Kigude to:

1. (a)explain the nature of accounts and records that his business is required to maintain under the Tax Procedures Code Act, 2014.
2. (10 marks)
3. (b)explain, in form of brief notes, the extension of time to furnish a tax return under the Tax Procedures Code Act, 2014.
4. (10 marks)
5. (c)advise on the due date and the resultant penalties for failure to file provisional returns of a company.
6. (5 marks) (Total 25 marks)

Question 5

(a) Uganda has various forms of tax legislation to govern tax compliance and administration. Over the years, there have been various amendments in the tax legislation; and compliance has drastically increased. Projecting by the year 2020, over 75% of Ugandan businesses would have embraced tax compliance.

ABB Company Limited dealing in furniture in Kampala for over 10 years was uncertain about the value added tax (VAT) treatment of imported services on 1 September, 2011 and applied for a private ruling from Uganda Revenue Authority (URA). URA's response was contrary to the expectations of the company, and the taxpayer opted not to adopt URA's interpretation.

Required:

The management of ABB Company Limited has approached you as their tax advisor to provide advice on the use and interpretation of the following categories of tax statutes in Uganda:

1. (i)Primary legislation.
2. (ii)Secondary legislation.
3. (iii)Practice notes.
4. (iv)Private ruling.
5. (v)Double taxation agreement.

(4 marks) (4 marks) (4 marks) (4 marks) (4 marks)

(b) Effective 1 July 2011, Paragraph 13 of the Value Added Tax (VAT) Regulations, 1996 was amended to exclude a claim of input VAT on imported services and effective 1 July 2012, Section 28 of the VAT Act, Cap 349 was amended to exclude a claim of input VAT on imported services.

Required:

Advise ABB Company Limited on the implications of the above amendments on the claim of input VAT on imported services.

(5 marks) (Total 25 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 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)

1. (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
2. (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

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 exceeding Shs 4,920,000 (Shs 410,000 pm)

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

Exceeding Shs 4,920,000 (Shs 410,000 pm)

1. (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
2. (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).

Gross Turnover

Tax Payable

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

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

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

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

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

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

(i) Kampala City and Divisions of Kampala

Business Trade

Turnover

Between

Shs 35 - 50 million

Between

Shs 20 - 35 million

Between Shs 10 - 20 million

General trade

500,000

400,000

250,000

Carpentry/metal workshops

500,000

400,000

250,000

Garages (motor vehicle repair)

550,000

450,000

300,000

Hair and beauty salons

550,000

400,000

300,000

Restaurants or bars

550,000

450,000

300,000

Drug shops

500,000

350,000

100,000

Others

450,000

300,000

200,000

(ii) Municipalities

Business Trade

Turnover

Between

Shs 35 - 50 million

Between

Shs 20 - 35million

Between

Shs 10 - 20 million

General trade

400,000

300,000

150,000

Carpentry/metal workshops

400,000

300,000

150,000

Garages (motor vehicle repair)

450,000

350,000

200,000

Hair and beauty salons

450,000

350,000

200,000

Restaurants or bars

450,000

350,000

200,000

Drug shops

400,000

300,000

150,000

Others

400,000

350,000

150,000

(iii) Towns and Trading Centres

Business Trade

Turnover

Between

Shs 35 - 50 million

Between

Shs 20 - 35 million

Between

Shs 10 - 20 million

General trade

300,000

200,000

100,000

Carpentry / metal workshops

300,000

200,000

100,000

Garages (motor vehicle repair)

350,000

250,000

100,000

Hair and beauty salons

350,000

250,000

100,000

Restaurants or bars

350,000

250,000

100,000

Drug shops

300,000

200,000

100,000

Others

300,000

250,000

100,000