Question 1 Mr. Fred Butima has been operating a restaurant in Kampala city centre for over 6 years. He is also employed by Quest Uganda Limited (QUL) as an accountant. He runs a side consultancy business to raise his standard of living. The following information relates to his income generating activities for the year ended 30 June, 2017. Restaurant business Statement of comprehensive income for the period ended 30 June: 2017 Shs '000' Revenue 500,000 2016 Shs '000' 450,000 (280,000) 170,000 (50,000) 120,000 Direct costs Administrative costs Operational profits Additional notes: (295,000) 205,000 (60,000) 145,000 Principles of Taxation - Paper 3 (i) Included in administrative costs the following: Shs '000' Rent Salaries Depreciation Provision for bad debts Repairs Trading licence Professional fees Bank charges Drawings Christmas gifts Transport 12,000 14,400 1,200 5,000 1,100 500 1,000 506 20,194 500 3,600 60,000 (ii) During the year, the restaurant acquired the following assets: Shs '000' Computer Cooker Chips cutter Showcase warmer Furniture 2,500 3,000 900 1,500 2,000 30 May, 2018 Page 2 of 9

(iii) Tax written down values 1 July, 2016: Shs '000' Class I 4,500 Class IV 9,700 (iv) Mr. Butima provided professional accounting services to an NGO in his locality and earned Shs 10,000,000 for his consultancy business. This income was subjected to 6% withholding tax. (v) Mr. Butima earns a monthly salary Shs 9,000,000. He was provided with a company car that was acquired on 1 July, 2015 for Shs 45,000,000. QUL paid rent of Shs 1,500,000 per month directly to his landlord. He was provided with medical insurance that cost the company Shs 2,000,000. His employer deducted local service tax of Shs 100,000. He received a year-end bonus of Shs 10,000,000. He also travelled to Nairobi on official duties for 6 days and was given a per diem of USD 150 per day (USD 1: Shs 3,600) to cater for his accommodation and meals. (vi) Mr. Butima owns apartments in Gayaza, Wakiso district from which he earned annual rent of Shs 24,000,000 during the year ended 30 June, 2017.

Required:

a)Compute for Mr. Butima for the year ended 30 June, 2017: (b)taxable income, giving reasons for any omissions where applicable.

Question 2 Mr. Kagoro is a resident of Seeta - Mukono district and owns one residential unit and a commercial unit, both situated near his residence. These buildings were completed in June, 2016 at a cost of Shs 300 million and Shs 800 million respectively. He earned gross rental income Shs 24 million from the residential unit and Shs 84 million from the commercial building during the year ended 30 June, 2017. During this period, this was the only source of income of Mr. Kagoro having retired as lecturer at Ishaka Christian University in 2016. The following information relates to Mr. Kagoro's rental business during the year of income ended 30 June, 2017. No. Item 1. Repairs, cleaning and sanitation 2. Emptying the sewerage system 3. Property rates 4. Security 5. Contribution towards the niece 's wedding 6. To facilitate the process of obtaining an occupancy permit, Mr. Kagoro paid Shs 1 million to Mr. Kintu who was a member of the local council. 7. While commissioning his commercial building, he threw a party for friends and business associates worth Shs 4 million. Required: a)Compute the rental tax payable by Mr. Kagoro for the year ended 30 June, 2017. (5 marks) b)In case Mr. Kagoro had incorporated a company through which his rental business was conducted; compute the rental tax that would be payable by the company for the year ended 30 June, 2017. (10 marks) c)Advise Mr. Kagoro on the due dates of the final returns of an individual and of a company dealing in rental business. (3 marks) d)Advise Mr. Kagoro on the VAT treatment of his rental income and output VAT arising, if any, assuming that he was voluntarily registered for VAT effective 1 July, 2016. Shs '000' 17,000 15,000 6,000 3,500 3,600 30 May, 2018

Question 3

Kantu Enterprises Limited (KEL) operates a supermarket located in Kawempe, Kampala district, and is registered for value added tax. The following transaction relate to the business operations for the month ended 31 December, 2017: Sales: (i) Sales revenue Shs 1,140,000,000 (VAT exclusive). (ii) Included in the sales revenue was Shs 150 million relating to sale of unprocessed foodstuffs and Shs 70 million relating to sale of cereals grown and milled in Uganda. Purchases: (i) Computers & accessories (VAT exclusive) (ii) Computer servicing (VAT inclusive) (iii) Office stationery (VAT inclusive) (iv) Meals for staff (VAT inclusive) Shs '000' 12,500 1,600 1,800 4,500 1,000 50,000 5,000 650,000 (v) Airtime (VAT inclusive) (vi) Rent (VAT exclusive) (vii) Audit fees (VAT inclusive) (viii) Trading stock (VAT inclusive) (ix) Repair of company's vehicle (Toyota Land Cruiser) for general manager (VAT exclusive) Shs 1,600,000. Additional information: 1. All purchases were made from VAT registered suppliers. 2. Trading stock relates to standard rated purchases on which VAT at 18% was applied. 3. Sales Shs 18 million (VAT inclusive) declared in the VAT returns of September, 2015 were found to be bad debts and decided to be written off. Required:

a)Compute the VAT claimable/ payable by KEL for the month of December, 2017. (20 marks) b)Distinguish between a zero rated supply and an exempt supply.

Question 4 Zhoghi Limited is incorporated in China and deals in road construction. The company set up a branch in Uganda, Zhoghi Uganda Limited, in 2015. The branch's income tax for the year ended 30 June, 2017 was determined to be Shs 200 million. The branch's financial statements for the year ended 30 June, 2017 are shown below: Statement of comprehensive income: 2017 Shs '000' Shs '000' Revenue 5,280,000 2016 Shs '000' Direct costs Gross profit Administrative costs 650,000 Other expenses 250,000 Profit before tax Tax expense Profit after tax (2,430,000) 2,850,000 (900,000) 1,950,000 (150,000) 1,800,000 580,000 190,000 Shs '000' 3,920,000 (1,752,000) 2,168,000 770,000 1,398,000 (120,000) 1,278,000 Statement of financial position: Shs '000' 2017 Shs '000' 25,000,000 1,710,000 26,710,000 22,310,000 4,400,000 26,710,000 Shs '000' 650,000 1,250,000 180,000 8,460,000 13,200,000 2016 Shs '000' 20,000,000 2,080,000 22,080,000 21,660,000 420,000 22,080,000 Non-current assets Current assets: Inventory Trade & other receivables Cash & cash equivalents Total assets Equity & reserves Reserves Head office account Current liabilities: Trade & other payables Total equity & liabilities 560,000 950,000 200,000 10,260,000 12,050,000 30 May, 2018

Required:

(a) Compute the branch remittance tax for the year ended 30 June, 2017. (14 marks) (b) Provide an explanation of what constitutes a branch of a non-resident company in Uganda. (8 marks) (c) The branch did not file its provisional tax returns during the year ended 30 June, 2017; however, the final self-assessment return was filed.

Required:

Compute the penalty for under provisioning. (3 marks)

Question 5

Governments world over require tax revenue for the provision of public goods and services. Tax is said to be the cost of civilization. The residence principle is fundamental in determining a person's connection with a country to justify its jurisdiction and right to tax that person's income. Mr. Paul Okello works for a government institution and is considering retiring and starting his own company to deal in the processing of juice by 30 June, 2018. He anticipates his company to have an annual turnover in excess of Shs 500 million. He does not have enough knowledge about the tax laws of Uganda. Recently while reading the newspapers, he came across an article written by a tax consultant concerning the taxation of resident and non-resident persons.

Required:

(a) As a tax advisor, advise Mr. Okello on what constitutes the residence of the following persons according to the Income Tax Act in Uganda for a year of income: (i) Individual (ii) Company (iii) Trust (iv) Partnership (v) Retirement fund (b) Mr. Okello is considering partnering with a non-resident person with intention of processing fruit juice.

Required:

a)Advise him on the status of a non-resident person under the Income Tax Act of Uganda. (2 marks) (c) Advise Mr. Okello on the likely taxes that his company will be subjected to and their applicable rates in Uganda. (8 marks)