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 Shs 'million'

Revenue 538,375

Cost of sales 1 (433,195)

Gross profit 105,180

Investment income 2 2,210

107,390

Distribution costs 3 (7,500)

Marketing expenses 4 (10,200)

Administration expenses 5 (25,000)

Finance costs 6 (3,000)

Profit before tax 61,690

Additional information:

1. Included in the cost of sales:

Shs 'million'

Fuel& electricity 85,000

Production raw materials 100,000

Professional fees 10,000

Transport costs 45,000

Depreciation of property, plant & equipment 98,500

Wages for casual labour 38,695

Insurance costs 56,000

433,195

2. Investment income:

The investment income comprises of interest earned on fixed deposit

accounts in various banks within Uganda.

3. Distribution costs:

Shs 'million'

Motor vehicle maintenance expenses 1,810

Warehouse expenses 2,500

Entertainment expenses for salesmen (they

are not required to provide any accountability) 120

Depreciation of motor vehicles 1,200

Provision for bad debts 1,870

7,500

4. Marketing expenses:

Shs 'million'

Radio & television advertisements 5,000

Sponsorship for vulnerable children in the

community 35

Sponsorship for town football club (factory logo

displayed at all matches where the team plays 500

Contribution towards independence celebrations

at the district 20

Others - all related to the business 4,645

10,200

5. Administration expenses:

Shs 'million'

Staff costs 15,000

Communication expenses 2,000

Security costs 5,500

Technical & professional fees (note 7) 1,200

Auditor's remuneration 520

Subscriptions to the Uganda Golf Union

for management staff 40

Subscriptions to the Uganda Professional

Engineers Association 30

Others - all business related 710

25,000

6. Finance costs:

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.

7. Technical & professional fees:

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.

8. Property, plant & equipment:

Tax written down values as at 1 July, 2016:

Shs 'million'

Class I 750

Class II 1,900

Class III 285,050

Class IV 90,000

Asset additions during the year ended 30 June, 2017:

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:

(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.

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

9. The provisional tax paid for the year ended 30 June, 2017 was Shs 2.1

billion.

10. 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.

Required:

(a) Compute the corporation tax payable by WCIL for the year ended 30

June, 2017.

(26 marks)

(b) Advise the management of WCIL on:

(i) the penalties and interest due, if any.

(7 marks)

(ii) the tax treatment for the technical and professional fees to the

three expatriates from HCIL.

(7marks)

(Total 40 marks)

SECTION B

Attempt three of the four questions in this section

Question 2

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.

2. Cost of living allowance of Shs 2millionper month.

3. Travel allowance for spouse Shs 2.5 millionper month.

4. Residential house in Nakasero. The house is part of the company houses

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

to NSSF whereby he would be entitled to a receipt of Shs 100,000,000 at

the end of the contract in June 2018.

11. Club membership in Kampala Club and Kabira Club totaling Shs500,000 per

month.

12. Security guard provided by Hash Security Group at Shs1.5million per

month.

13. Medical allowance Shs 3 million per month.

14. Life insurance premium Shs 500,000 to UAP Life Assurance Company Ltd.

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.

(11 marks)

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

(3 marks)

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

you earn.

(2 marks)

(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 marks)

(c) Explain how foreign employment income of a resident individual is

treated in Uganda.

(2 marks)

(Total 20 marks)

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:

(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:

(i) Assessment. (3 marks)

(ii) Tax obligation. (1 mark)

(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

(3 marks)

(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.

(2 marks)

(Total 20 marks)

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: Shs 'million'

Shareholder's funds:

Share capital 1,125

Capital redemption reserve 1,436

Security premium 4,125

Retained earnings 1,520

Equity 8,206

Non-current liabilities:

Long-term borrowings 9,000

Current liabilities:

Trade payables 1,230

Other current liabilities 158

Liabilities 10,388

Total equity & liabilities 18,594

Note:

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:

(a) Advise the management of OUL on the amount of allowable and non-

allowable interest for the year 2017.

(6 marks)

(b) With examples, explain any threemandatory and fivediscretionary powers

that the Commissioner General uses in tax administration.

(8 marks)

(c) (i) Explain the meaning of the term 'arm's length principle' with

reference to the Income Tax (Transfer Pricing) Regulations, 2011.

(2 marks)

(ii) Explain the options available to the Commissioner in case a taxpayer

fails to demonstrate arm's lengthprinciple.

(4 marks)

(Total 20 marks)

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

1

stStreet 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 USD

Computers 22,000

Floor tiles 85,000

Radios 15,000

Medical equipment 50,000

Mosquito nets 50,000

Diapers 75,000

Coffee roasters 80,000

Hoes 36,000

Required:

(a) Compute the VAT payable/claimable for the month of March 2018 in

consideration of the options available to MUL.

(15 marks)

(b) Given that the VAT return for March 2018 was filed on 20 April, 2018;

advise MUL on the:

(i) due date for filing the March 2018 VAT return.

(1 mark)

(ii) provisions of the VAT law regarding the penalty for late filing of the

VAT return.

(2 marks)

(iii) possible penalty payable, if any.