Western Cement Industries Ltd (WCIL) manufactures cement from limestone deposits mined from the rift valley areas of Rubirizi district, western Uganda. The main factory was constructed 10 years ago and is located inKyamburatown, a major trading centre in the district.

The following is WCIL's extract of the statement of profit or loss and other comprehensive income for the year ended 30 June, 2017:

Note

Revenue

Cost of sales 1 Gross profit

Investment income 2

Distribution costs 3 Marketing expenses 4 Administration expenses 5 Finance costs 6 Profit before tax

Shs 'million' 538,375 (433,195) 105,180 2,210 107,390 (7,500) (10,200) (25,000) (3,000) 61,690

Additional information:

1. Included in the cost of sales:

Fuel& electricity

Production raw materials

Professional fees

Transport costs

Depreciation of property, plant & equipment Wages for casual labour

Insurance costs

2. Investment income:

The investment income comprises of interest earned on fixed deposit accounts in various banks within Uganda.

1. Distribution costs:
2. Motor vehicle maintenance expenses Warehouse expenses
3. Entertainment expenses for salesmen (they are not required to provide any accountability) Depreciation of motor vehicles
4. Provision for bad debts
5. Marketing expenses:
6. Radio & television advertisements
7. Sponsorship for vulnerable children in the community
8. Sponsorship for town football club (factory logo displayed at all matches where the team plays Contribution towards independence celebrations at the district
9. Others - all related to the business
10. Administration expenses:
11. Staff costs
12. Communication expenses
13. Security costs
14. Technical & professional fees (note 7) Auditor's remuneration
15. Subscriptions to the Uganda Golf Union for management staff
16. Subscriptions to the Uganda Professional Engineers Association
17. Others - all business related

Shs 'million' 1,810 2,500

120 1,200 1,870 7,500

Shs 'million' 5,000

35 500

20 4,645 10,200

1. Finance costs:
2. Shs 3 billion was paid as interest on a loan of Shs 30 billion that was acquired to finance expansion of the factory. The extension was still under construction by 30 June, 2017 and is yet to be put to use.
3. Technical & professional fees:
4. The company employed three consultant engineers who are employees of Hardman Cement Industries Limited (HCIL), a company based in India. The three are citizens of India. The engineers were in the country for only five months and were paid Shs 200 million each as per the terms of their contract with HCIL.
5. Property, plant & equipment:
6. Tax written down values as at 1 July, 2016:

Class I Class II Class III Class IV

Shs 'million' 750 1,900 285,050 90,000

Asset additions during the year ended 30 June, 2017: Shs 'million' Limestone mining equipment 1,000 Two 10-ton trucks each at 150 Mercedes Benz for the managing director 250 Replacement of cement packing machine 1,600 Construction of a lorry parking yard 250 10 Laptop computers 30 Furniture 50

The existing factory building was constructed at Shs 1,200 billion and was first put to use on 1 July, 2007. The qualifying cost for industrial building allowance on 1 July, 2007 was Shs 960 billion.

Disposals:

1. (i)The old Toyota Land Cruiser for the managing director was sold at Shs 70 million. It had cost the company Shs 200 million when it was bought on 1 July, 2015. Motor vehicles are depreciated at 25% straight-line as prescribed by the company policy. Any gains or losses on sale of assets are already included in the revenue.

(ii)The old cement packing machine that was replaced was sold for Shs 150 million. The machine had been fully depreciated for accounting purposes.

1. The provisional tax paid for the year ended 30 June, 2017 was Shs 2.1 billion.
2. WCIL filed the return for the year ended 30 June, 2017 and paid the balance of the taxes due for the year on March, 2018.
3. Required:

(a) Compute the corporation tax payable by WCIL for the year ended 30 June, 2017.

(b) Advise the management of WCIL on:

the penalties and interest due, if any.

the tax treatment for the technical and professional fees to the three expatriates from HCIL.

Question 2

SECTION B

Bidmak International is a multinational company with a number of subsidiaries in different African countries including Uganda. Anderson Gregory, a resident of Eritrea where Bidmak International has its headquarters was hired as an expatriate to head its finance and administration operations in Uganda.

Anderson's appointment was effective 1July,2017 for a twelve-month contract, and on that date, he was availed a vehicle for use on both private and official duties. The vehicle was a brand new Toyota Land Cruiser V8 purchased from Kiyoko Uganda Limited at a cost of Shs 340 million. The company charged him a monthly nominal fee of Shs1.5 million for the use of the vehicle.

The company also has a policy of encouraging directors to acquire loans at a lower rate to enable them acquire property. He was thus given a loan of Shs 300 million at an interest rate of 5% per annum which he fully paid back by the end of June 2018 (12-months loan).

Anderson, being the Head of Finance & Administration, made two field visits per month where he spent two nights per visit. He was entitled to Shs 200,000 per diem per day and an accountable transport advance of Shs 500,000 per visit for fuel expenses.

Anderson was entitled to the following benefits: 1. Monthly basic pay Shs 45 million.

1. Cost of living allowance of Shs 2millionper month.
2. Travel allowance for spouse Shs 2.5 millionper month.
3. Residential house in Nakasero. The house is part of the company houses
4. reserved for senior managers and expatriates.The house has a monthly market rate of US$ 1,500 but he made a monthly contribution of Shs2.5 millionfor the house benefit.
5. Was reimbursed Shs 6 million being cost of passage to Uganda when taking up his job in July2017.
6. Was paid Shs 7millionin the year ended 30 June, 2018 being discharge of his medical bills.
7. Employer made monthly National Social Security Fund (NSSF) contribution Shs 1.5million to his retirement benefit scheme in the year ended 30 June, 2018.
8. The employer grants benefits to senior employees including Anderson in the form of roses, chocolates and sweets worth Shs 9,100 on a monthly basis throughout the year.
9. Housekeeper Shs 450,000 per month.
10. The company runs a separate pension scheme in addition to contribution
11. to NSSF whereby he would be entitled to a receipt of Shs 100,000,000 at
12. the end of the contract in June 2018.
13. Club membership in Kampala Club and Kabira Club totaling Shs500,000 per
14. month.
15. Security guard provided by Hash Security Group at Shs1.5million per
16. month.
17. Medical allowance Shs 3 million per month.
18. Life insurance premium Shs 500,000 to UAP Life Assurance Company Ltd.
19. Assume the following:

• Exchange rate of Shs 3,550 to US$1.
• Bank of Uganda average ruling rate for the year 10%.
• Anderson, being an Eritrean is not well versed with Ugandan tax laws, andhas decided to obtain your services as a tax consultant to review his tax issues for the year ended 30 June, 2018.

Required:

(a) Advise Anderson on the following issues with respect to the Income Tax Act, Cap 340:

(i) Gross employment income for the month ended 31July, 2017.

(ii) Tax liability for the month of July, 2017.

(iii) The due date for filing and payment of the monthly pay as you earn.

(2 marks)

1. (b)Compute the interest incurred due to the late payment of the tax liability given that the PAYE liability for Bidmak International for July, 2017 was Shs 128,535,000, but actual payment was made to the Uganda Revenue Authority on 15 January, 2018,
2. (2 marks)
3. (c)Explain how foreign employment income of a resident individual is treated in Uganda.

Question 3

The management of Bendlow Uganda Limited (BUL) received an estimated assessment of Shs 100 million from the revenue authority on 30 January, 2018. The explanation on the assessment was that it was an 'administrative additional assessment due to the company underestimating their chargeable income for the year ended 31 December, 2016.'

The management of BUL have approached you for advice on the tax challenges they have been experiencing while importing goods into the country.

Required:

1. (a)Explain to the management of BUL the following terms as used in the Tax Procedures Code (TPC) Act, 2014 and Income Tax Act, Cap 340 respectively:
2. (i)Assessment. (3 marks)
3. (ii)Tax obligation. (1 mark)
4. (b)Advise the management of BUL on any three grounds for an objection to an assessment to be considered a 'valid objection' by the Commissioner

(c) Discuss the objections and appeals procedure for resolving a tax dispute (tax decision) between Uganda Revenue Authority and the taxpayer up to the High Court as per the Tax Procedures Code (TPC) Act, 2014.

(11 marks)

(d) Advise the management of BUL on the penalty that is applicable where an amount of duty or other sum of money which is due under the East African Community Customs Management Act (EACCMA), 2004 remains unpaid after the date upon which it is payable in accordance to Section 249 of the Act.

Question 4

Oilpro International is one of the leading oil exploration and development companies registered in the United Kingdom (UK). They own 99% of the shares in Oilplus Uganda Ltd (OUL), a resident company registered in Uganda to explore oil and gas in the Albertine region.

The following is an extract from OUL's statement of financial position for the year ended 31December,2017:

Equity &liabilities: Shareholder's funds:

Share capital

Capital redemption reserve Security premium Retained earnings

Equity

Non-current liabilities: Long-term borrowings Current liabilities: Trade payables

Other current liabilities Liabilities

Total equity & liabilities

Note:

Shs 'million'

1,125 1,436 4,125 1,520 8,206

9,000

1,230 158 10,388 18,594

OUL obtained a development loan from Oilpro International amounting to Shs 9 billionrepayable in 10 yearsat an interest of 6% per annum at a fixed rate. As a tax advisor, you have been approached by the management OUL.

Required:

1. (a)Advise the management of OUL on the amount of allowable and non- allowable interest for the year 2017.
2. (6 marks)
3. (b)With examples, explain any threemandatory and fivediscretionary powers

(c) (i)

(8 marks)

Explain the meaning of the term 'arm's length principle' with reference to the Income Tax (Transfer Pricing) Regulations, 2011.

(2 marks)

that the Commissioner General uses in tax administration.

(ii) Explain the options available to the Commissioner in case a taxpayer fails to demonstrate arm's lengthprinciple.

Question 5

Mugaga Uganda Limited (MUL) has been in the business of importing and exporting various items for the last five years. MUL owns a wholesale shop in the Kikuubo Lane shopping centre in Kampala through which the imported items are eventually sold to various distributors. MULalso owns a seed-processing plant on 1stStreet of the industrial area of Kampala where various cereals are cleaned and packaged for export to Kenya, Sudan and the Democratic Republic of Congo. The company is registered for VAT.

All the cereals that the company exports are grown and milled in Uganda.

An extraction of their transactions for the month of March 2018 has been made.All imports and purchases are VAT exclusive whereas sales are VAT inclusive, where applicable. The weighted average exchange of the Uganda shilling (Shs) to the United States dollar (USD) for the month of March 2018 was 3,500.

Imports (inclusive of import duty where applicable):

Particulars Computers

Floor tiles

Radios

Medical equipment Mosquito nets Diapers

Coffee roasters Hoes

Local purchases:

Particulars Rice Wheat Maize

Exports: Particulars Rice Wheat Maize

Shs '000' 600,000 450,000

1,000,000

Shs '000' 300,000 150,000 450,000

Local sales: Particulars Computers

Floor tiles

Radios

Medical equipment Mosquito nets Diapers

Coffee roasters Hoes

Required:

Shs '000' 35,000 210,000 15,000 140,000 157,500 280,000 105,000 70,000

1. (a)Compute the VAT payable/claimable for the month of March 2018 in consideration of the options available to MUL.
2. (15 marks)
3. (b)Given that the VAT return for March 2018 was filed on 20 April, 2018; advise MUL on the:
4. (i)due date for filing the March 2018 VAT return.
5. (1 mark)
6. (ii)provisions of the VAT law regarding the penalty for late filing of the VAT return.

(iii) possible penalty payable, if any.

(2 marks)

(2 marks)