Question 1 Muyogoma Enterprise Limited (MEL) located in Njeru Town Council 80 Kilometers from Kampala deals in the distribution of electronic products. MEL has been in operations since 2014 and for the year ended 31 December, 2019, it made a profit before tax of 430.28 million after deducting the following expenses: Salaries Contract costs Advertising and promotions Repairs and maintenance Sales commission Staff welfare Bad debts Interest expense Donation Administration costs Depreciation Additional information: Notes 3 4 5 6 7 Shs '000' (346,000) (204,000) (106,000) (91,400) (49,200) (37,100) (89,000) (61,800) (22,000) (30,460) (126,000) 1. Included in revenue for the year is interest income of Shs 16 million net of withholding tax, received from Bank of Uganda from investments in treasury bills. 2. In April 2019, the company completed and occupied a new building it constructed at Shs 684 million. 3. Contract costs relate to fees paid in January 2019 to secure exclusive distribution rights of an electronic brand for 10 years. 4. Bad debt expenses include a bad debt written off of Shs 69 million and provisions of Shs 20 million. 5. Interest expenses include Shs 5.8 million paid for the director's personal loan. This benefit was not included in his employment income. 6. The donation was made to the town council towards preparation for the independence day celebrations. 7. Included in other administrative costs was a penalty of Shs 6.1 million paid to Uganda revenue authority. 8. MEL bought the following assets during the year: 10 ton truck for distribution Office furniture Shs '000' 136,000 94,600

9. The written down value as at 1 January, 2019 were as follows: Class I Class II Class III Class IV

Required: Shs '000' 16,200 109,000 218,000 110,000 (a) Compute MEL's chargeable income and tax liability for the year ended 31 December, 2019. (16 marks) (b) According to the income Tax Act cap 340, explain the meaning of bad debts and the conditions for allowing bad debts in the determination of chargeable income. (4 marks) (Total 20 marks)

Question 2 Alice Umutoni is the head of the tax department at A&S Associates. Her monthly emoluments are as follows: Shs'000' Salary 9,600 Transport allowance 300 Lunch allowance 220 House 900 Additional information: 1. She contributes Shs 200,000 towards rent of the house. 2. She was also given a motor vehicle worth Shs 46 million. 3. Received terminal benefits of Shs 18.6 million from her previous employer. 4. Received medical expense reimbursement of Shs 638,000 after presenting documents from the medical centre. 5. The firm paid Shs 1.2 million to National Law Society (NLS) for her practicing license and annual subscription fees. 6. Received a loan from the firm Shs 42 million at an interest rate of 8% per annum. The Bank of Uganda lending rate was 10% at the time. 7. Had an engagement with a client in Gulu, the firm refunded her meals, travel, and accommodation expenses of Shs 380,000. 8. Received professional fees of Shs 600,000 when she made a presentation on tax compliance to a group of businessmen.

Required: (a) Compute Umutoni's chargeable income and tax liability for the month of April 2020. (14 marks) (b) In accordance with the Income Tax Act Cap. 340: (i) Distinguish between a contract of service and a contract for services (2 marks) (ii) Explain the factors that are considered in determining whether a person is an employee or an independent contractor. Question 3 (a) Buddu General Suppliers (BGS) is a Value Added Tax (VAT) registered company located in Ndeeba, Kampala. The company had the following transactions during the month of January 2020: 1. Purchased plastic chairs Shs 42 million. 2. Sold 50 dozens of plastic basins Shs 28.2 million. 3. Exported plastic cups and jerrycans to south Sudan Shs 36.9 million. 4. Bought mattresses and blankets Shs 34 million on credit from Efo Foam Industries Limited. 5. Supplied mattresses and blankets Shs 53.2 million on credit to JML Enterprises. 6. Paid Shs 1.8 million for maintenance and repair of distribution trucks. 7. Purchased a printer Shs 376,000 for printing invoices and receipts. 8. Bought boxes of soap, cooking oil, and packed sugar worth Shs 18 million from Wuhan Distributors. At the end of the month, half the amount was outstanding. 9. Sold 194 boxes of soap and 50 boxes of alcohol-based hand sanitizers Shs 15.6 million. 10. Paid telephone bills Shs 340,000. 11. Supplied textbooks worth Shs 11 million to Kays Secondary School. 12. Paid salaries to staff Shs 8.9 million. Note: All purchases are VAT exclusive and sales are VAT inclusive where applicable.

Required:

Compute the VAT payable or claimable by BGS for the month of January 2020. (10 marks) (i) three circumstances under which the Commissioner General is (b) In accordance with the VAT Act Cap 349 explain: required to refund the taxes paid. (6 marks) (ii) two taxable supplies or imports from which a taxable shall not qualify for input tax credit.

Question 4 (a) Pioneer Estates Limited (PEL) is real estate company with consultancy services in land surveying. For the year ended June 2020, PEL's financial performance was as follows: Particulars Notes Shs'000' Shs'000' Gross rental income 1 Consultancy services Salaries 2 Property rates Water and electricity Cleaning services Security Interest expense 3 Notes: 736,000 142,000 146,000 48,000 73,100 39,000 24,000 52,000 878,000 382,100 1. Gross Rental Income includes Shs 108 million rent received from one of the tenants for 12 months from January to December 2020. 2. Included in salaries is Shs 36 million annual salary for the surveyor in the consultancy service. 3. Interest expense includes Shs 8 million relating to a loan used by the managing director.

Required: Compute PEL's chargeable rental income for the year ended 30June 2020 and rental tax payable. 21December, 2020 Page 5 of 9

(10 marks) (b) In accordance with the Income Tax Act Cap 340, explain the treatment of rental income of an individual. (8 marks) (c) Explain the meaning of "property income" according to the Income Tax Act Cap. 340. Question 5 Mr. Genyena is a businessman operating a restaurant in downtown Kampala. He is also a part-time lecturer at Kampala Metropolitan University. The information below relates to his incomes and expenses for the year ended June 30, 2020: Revenue Purchases Rent wages Shs '000' 132,000 72,000 6,000 8,4000 Additional information: 1. He earned Shs 24 million from his part-time lecturing services. 2. During the year, Mr. Genyena received dividends of Shs 1.2 million from shares held in a company listed on the stock exchange.

Required: (a) Compute Mr. Genyena's tax liability for the period ended June 30, 2020. (b) In accordance to the Income Tax Act Cap.340 explain: (i) the implications of withholding tax as a final. (ii) the meaning of small business taxpayer. (c) Explain any four principles of a good tax system. (10 marks)

Question 6 With the signing of the East African Customs Management Act 2004, the East African Community reached the second level of economic integration that is customs union.

Required: (a) Explain the term custom union. (b) Explain the advantages of operating a customs union by the partner states (6marks) (c) Mr. Ssemujju is a businessman dealing in wholesale and retail of garments on Kampala Road. He imported from Malaysia a consignment of five items with the following free on board values (FOB): Item Shoes Shirts Watches Jeans Khaki US dollars 9,000 8,000 9,900 5,050 7,400 Additional Information: (i) He paid ocean freight of USD 2,800; insurance of USD 900. (ii) The Uganda Revenue Authority exchange rate at the time of entry was 1 US dollar for Shs 3,760. (iii) Theimportdutyrateis25%. (iv) Infrastructurelevy1.5%.

Required: Determine the customs value and the total taxes payable by Mr. Ssemujju.

RATES OF TAX Resident Individuals Not exceeding Shs 2,820,000 (Shs 235,000 pm) Nil Exceeding Shs 2,820,000 (Shs 235,000 pm) but not 10% of the amount by which chargeable income exceeding Shs 4,020,000 (Shs 335,000 pm) exceeds Shs 2,820,000 (Shs 235,000 pm) Chargeable income Rate of tax 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) (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 (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 Not exceeding Shs 4,020,000 (Shs 335,000 pm) 10% Chargeable income Rate of tax 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) (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 (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). Small Business Taxpayers 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.

Small Business Taxpayers Tax Rates where the gross turnover is below Shs 50 million (i) Kampala City and Divisions of Kampala Business Trade General trade Carpentry/metal workshops Garages (motor vehicle repair) Hair and beauty salons Restaurants or bars Drug shops Others (ii) Municipalities Business Trade General trade Carpentry/metal workshops Garages (motor vehicle repair) Hair and beauty salons Restaurants or bars Drug shops Others (iii) Towns and Trading Centres Business Trade General trade Carpentry / metal workshops Garages (motor vehicle repair) Hair and beauty salons Restaurants or bars Drug shops Others Between Shs 35 - 50 million 500,000 500,000 550,000 550,000 550,000 500,000 450,000 Between Shs 35 - 50 million 400,000 400,000 450,000 450,000 450,000 400,000 400,000 Between Shs 35 - 50 million 300,000 300,000 350,000 350,000 350,000 300,000 300,000 Turnover Between Shs 20 - 35 million 400,000 400,000 450,000 400,000 450,000 350,000 300,000 Turnover Between Shs 20 - 35million 300,000 300,000 350,000 350,000 350,000 300,000 350,000 Turnover Between Shs 20 - 35 million 200,000 200,000 250,000 250,000 250,000 200,000 250,000 Between Shs 10 - 20 million 250,000 250,000 300,000 300,000 300,000 100,000 200,000 Between Shs 10 - 20 million 150,000 150,000 200,000 200,000 200,000 150,000 150,000 Between Shs 10 - 20 million 100,000 100,000 100,000 100,000 100,000 100,000 100,000