Romano Contractors Uganda Limited (RCUL) is a Ugandan company incorporated in 2010. The company's main business activity is general construction and their head office is on Kampala Road in the city centre. The company bought a commercial building complex on Plot 52 Mamdani Road, Kampala, in 2015 for Shs 3.9 billion and incurred expenses of Shs 500 million to renovate it before renting it out with effect from 1 July, 2015.

The following is RCUL's statement of comprehensive income for the year ended 30 June, 2018

Note

Contract income

Cost of sales

Gross profit

Other income 1 Total revenue

Less expenses:

Selling & distribution costs 2 Administrative costs 3 Profit before interest and tax Finance cost

Profit for the year before tax Corporate income tax (30%)

Net profit for the year after tax

Shs'000'

134,617 3,890,497

Notes:

1. Other income includes the following:

Note Gross interest (i)

Rental income from commercial property on Plot 52 Mamdani Road Realised exchange gain

Unrealised exchange gain

Total other income

Shs'000' 56,990,268 (51,582,668) 5,407,600 14,924,013 20,331,613

(4,025,114) 16,306,499 (1,151,087) 15,155,412 (4,546,624) 10,608,788

Shs '000' 1,203,173

11,129,295 2,227,258 364,287 14,924,013

Selling & distribution costs are made up of:

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Bribes to the district officials

Printing 10 signposts at construction sites

Payment to URA officials for Tax Clearance Certificate Uniforms, overcoats, and overalls

Provision for bad debts

Total selling & distribution cost

3.

Administrative costs include: Item

Audit & Accountancy fees Legal expenses

Stationery & printing Rent & rates

Building repair expenses Utilities paid

Repair of machinery Management fees Unrealised exchange loss Security costs

Staff travelling costs

Staff salaries & welfare

Directors remuneration

Machine hire costs

Insurance cost

Penalty for late submission of value added tax (VAT) returns

Cleaning & compound maintenance costs General depreciation of property

Pay as you earn (PAYE) costs

Amortisation of prepaid lease rentals

Police fines & penalties

Annual subscription fees

Vehicle running expenses

Group life insurance for directors Entertainment and end of year party expenses Income tax paid

Total administration cost

Shs '000' 27,749 55,000 9,500 4,500 25,068 12,800 134,617

Shs '000' 24,000 150,605 151,873 187,526 18,000 76,208 86,750 150,000 3,011 294,215 (v) 23,501 1,527,793 180,000 104,810 23,501

Note

(ii)

(iii) (iv)

4,800 13,802 179,502 111,642 177,362 1,916 35,000 424,004 20,298 (ix) 5,413 14,965 3,890,497

Additional notes:

1. (i)The bank withheld tax on this interest before it was deposited into the account.
2. (ii)The building repairs expense relate to the repairs made on the commercial building at Plot 52 Mamdani road which is being rented out on commercial basis.
3. (iii)The management fees relate to the expatriate engineers hired by the company from Romano Construction International (RCI), a company resident in India, for a period of one month to supervise the set-up of a hanging bridge in Jinja. RCI has numerous construction projects in India and the two shareholders of the company, the Patel brothers live in New Delhi, India.
4. (iv)Half of the security costs is for the office while the balance is for the commercial building on Plot 52 Mamdani Road.
5. (v)75% of the travel costs relate to expenses for field trips whereas the balance relates to the company bus expenses for transporting staff to and from work.
6. (vi)Cleaning and compound maintenance costs relate to the cleaning and maintenance of the commercial building on Plot 52 Mamdani Road.
7. (vii)Amortisation of prepaid lease rentals: The lease is to run for a period of 10 years and was acquired on 1 July, 2010 at Shs 1,773,620,000.
8. (viii)Subscriptions relate to engineers' membership fees to the Engineers' Association.
9. (ix)This doubled as a Christmas party and staff were encouraged to attend with their family members.

4. Written down values for assets 1 July, 2017:

Class I

II

III IV

Shs '000' 140,603 522,933 714,235 379,425

5. During the year, the following assets were acquired to improve on the company operations.

Asset

Computers

Motor vehicles (salon cars)

Plant & machinery used in construction Office furniture, fittings & equipment

Shs '000' 11,347 289,068 206,356 1,174,800

1. The company had a taxable loss brought forward from the year ended 30 June, 2017 Shs 1,508,000,000 but had paid provisional tax Shs 1 billion in anticipation of making a taxable profit during the year.
2. The company was not on the list of taxpayers exempted from withholding tax for the year ended 30 June, 2018 and received tax credit certificates as follows:
3. Details:
4. From tenants at Plot 52 Mamdani Road From suppliers of building materials
5. Required:
6. (a)Advise the management of RCUL on their total chargeable income and tax payable on the income for the year ended 30 June, 2018.
7. (26 marks)
8. (b)Explain the following terms and their treatment as per the Income Tax Act Cap 340:
9. (i)balancing charge. (2 marks)
10. (ii)balancing allowance. (2 marks)
11. (c)Advise the management of RCUL on:

(i)

(ii)

the due dates for filing provisional and final income tax returns and the due dates for the payment of provisional and final tax for a company.

(4 marks)

the penalty charged for late filing and payment of provisional and final income tax.

(2 marks)

(iii) the tax treatment of the professional fees paid to Romano Construction International.

(4 marks) (Total 40 marks)

Shs 'million' 660 120

SECTION B

Attempt three of the four questions in this section

QUESTION 2

(a) Mr. Joseph Byamungu runs several businesses in Mbarara district, trading as Byamungu and Sons. He operates a shop from his building which doubles as his residence in Mbarara town. He uses 50% of the building as his residence with his family of 10 people. He also owns a mixed farm in Kashari county, Mbarara district.

The building cost him Shs 1 billion to complete in June 2008 and he occupied it on 1 July, 2008. The building was constructed using his personal savings from his employment with the Government of Uganda as Permanent Secretary in the Ministry of Finance and partly by borrowing Shs 400 million from Housing Finance Bank repayable in 15 years' time at an interest rate of 10% per annum. He is now retired and earns monthly pension of Shs 955,000.

Byamungu and Sons' statement of profit or loss and other comprehensive income for the year ended 30 June, 2018 is as below:

Particulars

Gross revenue from shop sales Cost of sales

Gross profit

Other income

Total income

Expenses:

Salaries & wages

Water & electricity

Transport & fuel

Depreciation

Farm expenses

Insurance

Training & education

Provision for bad debts Donations

Other business expenses

Net profit

Note

1

2 3

4 5 6

7

Shs '000'

24,000 7,200 6,000

150,225 98,500 1,200 10,500 4,000 5,000 220,000

Shs '000'

910,000 (312,560) 597,440 189,000 786,440

Advanced Taxation - Paper 9

(526,625) 259,815

Notes:

1. Other income comprises of the following amounts:

Interest earned on fixed deposit account Dividends from Byansi Ltd (private company) Pension

Farm sales

Shs '000' 15,000 30,000 11,460 132,540 189,000

1. Included in the salaries and wages is Shs 10 million salary earned by Mr. Byamungu.
2. Mr. Byamungu owns two cars, a pickup and Toyota Prado. The pickup is used strictly for business and 80% of the transport and fuel expenses are attributed to the pickup.
3. Mr. Byamungu's family consumes 30% of the farm produce and 70% is sold.
4. Insurance costs include life insurance premium for the life of Mr. Byamungu Shs 620,000. The remaining amount relates to general business insurance.
5. Included in training expenses is an amount Shs 2 million for payment of first year fees at university for Tom Byamungu, the son of the family. He is pursuing a degree in business management.
6. Mr. Byamungu contributed Shs 5 million in a fundraising drive organised by the area member of parliament towards the construction of a road in Kashaari County where his farm is located.
7. Asset details:
8. Tax written down values of assets 1 July, 2017:

Class II

IV

Shs 12,569,214 98,395,200

Additions:

A new house for the workers' accommodation was constructed at

the farm for Shs 125 million and was first used 1 January, 2018.

1. Provisional tax paid for the year was Shs 80,275,129.
2. The business made some supplies to Mbarara district headquarters
3. and tax Shs 9,050,000 was withheld.

Required:

Compute the chargeable income and tax payable for Mr. Byamungu for the year ended 30 June, 2018.

(16 marks)

(b) Mr. Byamungu had travelled for business in the United States at the time of filing the return. He was not able to return to Uganda in time to file the return because of flight reschedules due to poor weather conditions. The Revenue Authority's Mbarara office has issued him with an assessment for non-filing of the return.

Required:

Advise Mr. Byamungu on the procedure for objecting to the assessment.

(4 marks) (Total 20 marks)

Question 3

Technology Plus Uganda Limited (TPUL) was incorporated in March 2010. The company's head office is located in Kanjokya, Kampala and it is registered for income tax, pay as you earn (PAYE) and value added tax (VAT). The company deals in the supply and repair of computers, photocopiers, scanners, and other data handling equipment.

During the month of January 2018, they were awarded a three year contract to supply and repair computers of China Engineering Limited that is supervising the construction of dams in Uganda. The construction of the dams is being funded by World Bank and Government of Uganda.

The following is a summary of TPUL's transactions for the month of September 2018:

Sales: (VAT exclusive where applicable)

1 September: 2 September: 5 September:

10 September: 14 September: 20 September:

sold computers to Magezi Distributors Shs 50 million.

sold photocopiers to unregistered taxpayers Shs 18 million. serviced computers and servers used by China Engineering Limited Shs 76 million.

installed scanners in Kamanzi Hospital, Kigali- Rwanda Shs 38 million. The work took 2 days to complete.

donated office furniture valued at Shs 200,000 to Kibawo carpenters.

sold security cameras and accessories to Brown, a diplomat who resides in Kololo, Shs 8 million.

Page 8 of 14

Purchases and expenses: (VAT exclusive where applicable)

3 September: 4 September:

7 September: 10 September: 16 September:

18 September: 20 September:

25 September: 27September: 30 September:

Required:

paid quarterly rent for September, October and November 2018 for its store located in Naguru Shs 30 million.

received software from Patel electronics, the sole distributor of software in Uganda. This software was specifically to be used in the installation works for China Engineering Limited. It cost Shs 38 million.

paid electricity Shs 5,450,000.

purchased stationery Shs 1,700,500.

imported distribution truck from Japan at cost United States dollar (USD) 25,000, insurance USD 4,000, freight USD 7,000 and import duty at 25%. The exchange rate for the month of September 2018 was USD 1 to Shs 3,300.

purchases fuel for the generator Shs 600,000.

paid Shs 7 million to Karil Food Supplies for the supply of office food.

paid Shs 15.2 million to JM Packaging Limited for the supply of packaging boxes and materials.

received a demand note Shs 12 million from Tamale Consultants as professional fees for work done in August 2018. paid Shs 16 million to Assured Insurance Company for life insurance services.

1. (a)Advise TPUL on the VAT payable or claimable for the month of September, 2018.
2. (14 marks)
3. (b)TPUL filed the September 2018 VAT returns on 12 November, 2018. Advise on any penalty, if any, that the company is liable to pay.
4. (2 marks)
5. (c)Explain the VAT treatment where a person receives imported services from another person for a consideration.
6. (4 marks) (Total 20 marks)

Question 4

1. (a)A foreign company can penetrate a foreign market through a number of ways amongst which is establishment of a branch in a foreign state.
2. Required:
3. Explain the term 'branch' in accordance with the Income Tax Act, Cap 340.
4. (4 marks)
5. (b)Singa-Singa Limited (SSL) is a non-resident company headquartered in Mauritius and operating in Uganda through a branch, Singa-Singa Uganda Limited (SSUL). SSL's main business activity is provision of financial services. During the year ended 30 June, 2018 the following transactions transpired:
6. SSUL obtained a loan Shs 300 million from its parent company in Mauritius on which interest of 20% was charged by the parent.
7. During the year, SSUL obtained professional services from the
8. parent at a fee Shs 35,825,000.
9. During the same year, SSUL also obtained technical services and an
10. IT software from the parent to improve their operations in Uganda. They were charged Shs 58 million and Shs 25 million respectively by the parent.
11. In addition, the following information was also presented for your consideration:
12. On 1 July, 2017 the total cost base of SSUL assets was Shs 1,560,000,000. Its net profit for the year of income ended 30 June, 2018 was Shs 286 million on which 30% tax was payable on this profit. The total cost base SSUL's assets at 30 June, 2018 was Shs 1,391,000,000.
13. Required:
14. (i)Define the term 'management charge' according to the Income Tax Act Cap 340.
15. (3 marks)
16. (ii)Compute the tax deductible on loan interest, professional services, technical services and IT software paid by the SSUL to SSL.
17. (7 marks)
18. (iii) Determine SSUL's repatriated income and tax payable on the repatriated income in accordance with the Income Tax Act, Cap 340.
19. (6 marks) (Total 20 marks)

Question 5

(a) Ms. Spice Nakatudde is the managing director of Naka Confectioneries Limited (NCL). NCL has been in the business of baking all types of cakes, cookies and bread since 2015, using imported wheat flour from Canada.

In March 2018, NCL imported wheat flour at United States dollar (USD) 55,000 free on board (FOB) Vancouver- Mombasa. The shipping company charged USD 8,500 to Mombasa. Mombasa Coast Transporters Ltd (MCTL) transported the wheat flour at USD 3,000 from Mombasa to Nakawa Industrial area, Kampala where the bakery is located. The company also paid insurance USD 1,200 against any damage while the consignment was in transit at sea.

On 5 July, 2018, Ms. Nakatudde attended a conference organised by Uganda Bakers Association. The aim of the conference was to enlighten members on how they can maximise profits in their businesses. She learnt that NCL may be able to make a saving if they imported hard wheat grain.

NCL would mill the grain in Uganda and sell the flour to the local market and also be able to sell the by-product as animal feeds. After buying a milling factory that had been put on auction in August 2018, NCL imported the first consignment of hard wheat grain from Canada in September 2018, USD 30,000 FOB, Vancouver- Mombasa. The shipping company charged them USD 8,500 to Mombasa. MCTL transported the wheat grain at USD 3,000 from Mombasa to Nakawa Industrial area, Kampala where he milling factory is located. NCL also paid insurance of USD 1,200 against any damage while the consignment was in transit at sea.

The following information is also useful:

1. The exchange rate of the Shs to the USD was, March 2018- 3,605.3 and September 2018- 3,655.26
2. Import duty rates
3. Raw materials 0% Intermediate goods 10% Finished goods 25%
4. Wheat flour and wheat grain are described as sensitive products and attract duty of 50% and 35% respectively.

Required:

Compute the taxes due and payable on the importation of both the wheat flour and hard wheat grain.

(b) NCL have been informed by their clearing clearing agent that the customs officials have rejected the valuation for the wheat grain and have issued an additional assessment increasing the value. NCL is not willing to pay any additional tax relating to the consignment.

Required:

Advise NCL on the procedure of objecting to the customs assessment.

(6 marks)