Question 2

(a) Biffekeera General Enterprises Limited (BGEL) located in Mbararamunicipalitydeals in the sale of shoes. BGEL has not been maintaining proper books of account over the years. However in a bid to improve taxpayer compliance, Uganda Revenue Authority (URA) set up a two days tax clinic in Mbarara municipality to sensitised traderson the importance of getting a Tax Identification Number (TIN) and maintaining proper records.

After the seminar BGEL acquired a TIN and they also appointed Coopers House Consultants to prepare their books of accountfor the year ended 30June, 2018.

The following information relates to BGEL for the year ended 30 June, 2018:

Sales/ turnover

Other income

Cost of sales

Gross profit

Less expenses:

Depreciation

Rent

Unrealised foreign exchange loss

Penalties (failure to maintain proper records) Water and electricity

Heavy duty printer

Salaries and wages

10% social security contribution for staff School fees for director's children

Pay as you earn (PAYE)

Donations

Value added tax

Net profit

Notes:

Note

1 2

3

4 5

Shs '000'

100,000 70,000 3,000 10,000 15,000 30,000 133,000 8,000 5,000 11,000 15,000 100,000

Shs '000' 800,000 150,000

(350,000) 600,000

(500,000) 100,000

1. The company imports shoes and as a result, it had an

foreign exchange gain of Shs 50 million included in other incomes.

unrealised

1. Cost of sales includes a purchase of shoes worth Shs 20 million from a local trader.
2. The expense for water and electricity includes Shs 3 million for electricity consumed at the director's residence.
3. Donations include Shs 6millionmade to a home for orphaned children in Gayaza and Shs9milliontoFPP a political party in Uganda.
4. The company registered for VAT in August 2016 and has been accounting for VAT on its sales and also claiming all the VAT incurred on its transactions.
5. The Tax written down values of the assets as at 1 July, 2017 was as follows:

Shs '000' 40,000 150,000 15,000 30,000

7. On 1 August, 2017, the company bought the following assets:

1. (i)5 new computers Shs 7.5 million.
2. (ii)10 tonne delivery van Shs70million.
3. (iii)7 tonne truck Shs 80 million for delivering shoes to its clients
4. located upcountry.
5. (iv)Furniture from Furniture World Limited Shs8 million.
6. (v)second-hand shoe repairing machine Shs 15 million for
7. repairing shoes for clients as an after sale service.
8. (vi)Brandnew Toyota V8 Land Cruiser Shs 120 million.

Required:

Compute BGEL's chargeable income and tax liabilityfor the year ended 30 June, 2018.

(15 marks)

(b) The Ministry of Finance has been increasing URA's annual tax collection target over the years in order to finance the government budget. For URA to be able to achieve its target, it has to ensure that its tax system is effective.

Required:

(i)Discuss at least five characteristics of a good tax system. (5 marks) (Total 20 marks)

Question 3

1. (a)Jamal Agrotech Limited (JAL) is a company incorporated in Uganda and registered for value added tax (VAT). JAL is engaged in farming and sale of wine. The company grows cotton, fruits and vegetables and all the produce is exported to Singapore. Wine is imported from India and sold locally. During the period of February 2018, the company had the following transactions.
2. Purchases and expenses:
3. (i)Imported a container of wine Shs 520 million.
4. (ii)Bought 2 Massey Ferguson tractors Shs 800 millionfor use on its
5. farm in Luwero district.
6. (iii)Bought cotton and vegetable seeds from Container Village in
7. Kampala Shs 8 million.
8. (iv)The company replaced tyres and shock absorbers Shs 2 millionVAT
9. exclusive for its saloon car which is used for transporting staff to the
10. field while executing company activities.
11. (v)Bought fuel for its tractorsShs9million.
12. (vi)Paid telephone expenses Shs 4millionVAT exclusive.
13. (vii)Bought an Isuzu lorry truck Shs 50 millionVAT inclusive for
14. transporting wine and farm produce.
15. Sales:
16. (i)Exported 2 containers of cotton, fruitsand vegetables to Singapore and was paid Shs 300 million.
17. (ii)Sold 70 cartons of wine for Shs 70 millionVAT inclusive to customers across the country.
18. Required:
19. Compute JAL's VAT payable/claimable to be included in its VAT return for the month of February 2018.
20. (10 marks)
21. (b)JAL supplied wine to a hotel worth Shs 10 million on 3 March, 2018 and raised a tax invoice on 2 April, 2018. Due to financial constraints faced by the hotel they were paid on the 14 May, 2018.
22. Required:
23. Explain the followingto JAL:

(i) Meaning of the term 'time of supply' as provided for in the VAT Act Cap 349.

1. (ii)The VAT period they are supposed to account for VAT on the transaction in (b) above in their monthly VAT return.
2. (1 mark)
3. (iii)Advantages of using cash accounting over invoice accounting when accounting for VAT.

Question 4

(a) Mr. Mpungu has been the head of IT department of Maxwell Telecom Uganda Limited with effect from 1 July, 2016 and his appointment letter included the following terms.

1. Basic salary Shs 11 million per month.
2. Medical insurance Shs 2 million per annum for him and his family.
3. Shs 300,000 per month for a security guard at his residence.
4. School fees for his children equivalent to Shs 3 million per year.
5. Water and electricity Shs 150,000 per month.
6. A 10% monthly contribution to National Social Security Fund (NSSF)
7. by the company Shs 1,100,000.
8. Entitlementto a company car to be used for both official and private
9. purposes. The car was bought on 1 July, 2015 at a cost of Shs 200 million. It was provided to him on 1 January,2017 when its market value was Shs 170 million. The car is available to him for use throughout the year and he makes a contribution of Shs 800,000 towards replacement of the worn-out tyres per year.

Additional information:

1. (i)Mr. Mpungu visited the northern region branch offices to assess IT competences of the staff following the rollout of new application software. He was given a subsistence allowance of Shs 2 millionand the company driver was given Shs 1 million.
2. (ii)He was engaged in a part time employment with Mega solutions Limited for an upgrade of their accounting system and was paid Shs 5 million.
3. Required:
4. Compute Mr. Mpungu's chargeable employment income and tax liability for the year ended 30 June 2018.
5. (15 marks)

(b) After a year in employment, Mr. Mpugu is thinking of quitting his job as head of IT at Maxwell Telecom Uganda Limited because he wants to open up his own company and become an independent contractor.

Required:

(i)Explain to him the differences between an employee and an independent contractor.

Question 5

(a) A taxpayer in Kasese town owned a building with a cost base of Shs 4.5billion. The building was washed away by floods and his insurance company compensatedhim Shs 3.8 billion. The taxpayer bought a replacement building for Shs 4.9billion.

Required:

(i) Compute the cost base of the replacement building. (2 marks)

(ii) Given that one year after replacing the building, the taxpayer sold it

for Shs 5.2 billion; compute the gain or loss on the disposal of the

building.

(b) Describe the following as per the Income Tax Act Cap 340:

(2 marks)

b)Gain on disposal of assets.

Special rules for consideration received where an asset is disposed of to an associate.

(2 marks)

(c) Explain any eight examples of non-tax revenues in Uganda.

(d) Explain any four implications of withholding tax being a final tax under the

i)Business asset.

ii)income

iii)tax Act.

Question 6

a)Explain the socio-cultural factors that affect business activities.

b)Describe the documents that small and medium-sized entities use when purchasing goods.

c)Explain the disadvantages of buying an existing business. (6 marks)