Advanced Taxation Paper 9 – Solutions November 2019

Solution 1
(a)
(i) TML Computation of chargeable income and tax payable / refundable for the year ended
31 December 2018
Shs '000' Shs '000'
Profit before tax 1,565,125
Add back
Depreciation and amortisation 780,200
General impairment provision 98,760
Provision for gratuity 385,000
School fees for staff children 235,900
Funeral expenses 45,800
End of year party 115,800
Unrealised foreign exchange losses 375,800
Withholding tax paid 300,500
Entertainment expenses 79,650
Stamp duty 23,000
Provision for unexpected losses 220,000
Installation of core banking software 1,000,000
Penalties to Bank of Uganda 18,620
Balancing charge on sale of bullion van 184,090
3,863,120
Less
Interest on treasury bills 3,168,000
Unrealised gain on foreign exchange trading 353,877
Profit on disposal of equipment 92,600
Initial allowance 543,750
Depreciation allowance 276,992
Minor capital allowance 20,000
(4,455,219)
Chargeable income 973,027
TAX (30%) 291,908
Less provisional tax (100,000)
Less WHT paid (300,500)
Tax refundable (108,592)

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(ii) Working 1 Capital allowances
Initial Class I Class II Class III Class IV Total
allowance
50% 40% 35% 30% 20%
Shs'000' Shs'000' Shs'000' Shs'000' Shs'000' Shs'000'
TWDV 1 /01/18 15,600 18,250 28,510 129,320 191,680
Additions
Software 500,000 500,000 500,000
installation
Desktop 43,750 43,750 43,750
computers
Mercedes Benz 60,000 60,000
543,750 559,350 78,250 128,510 129,320 795,430
Disposals
Bullion Van (212,600) (212,600)
543,750 559,350 78,250 - 129,320 766,992
Depreciation (223,740) (27,388) - (25,864) (276,992)
TWDV 335,610 50,863 - 103,456 489,928
31/12/2018

Balancing charge to add back 184,090

Non qualifying motor vehicle Shs 140,000,000

(b) Tax implications of making charitable donations

According to Section 34 of the Income Tax Act, a person is allowed a deduction for a gift
made to an organisation which is
 An amateur sporting organisation, or
 A religious, charitable or educational institution of a public character
The value of the gift should be the lesser of
 The value of the property at the time of making the gift ; or
 The consideration paid by the person for the property.
 The amount of the deduction allowed shall not exceed 5% of the persons chargeable
income, calculated before taking into account the deduction made
 Therefore the payment of donations to individuals will not be an allowable deduction
for tax purposes and the company will have to pay additional tax of 30% on the
amount.
 In order for the company to benefit from the deduction, arrangements should be
made to make the donations to public schools where the target individuals will
benefit from.

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c) (i) Advice
The management of TML should not agree to the proposal because if they do, they will
have committed an offense.
Section 63 of the TPCA
 A person who directly or indirectly offers or gives a tax officer any payment or
reward, whether pecuniary or otherwise, or any promise or security for any such
payment or reward, not being a payment or reward which the officer is lawfully
entitled; or.
 Proposes or enters into an agreement with a tax officer in order to induce the officer
to do any act or thing, abstain from doing any act or thing , connive at the doing of
any act or thing ,or concealing any act or thing by which tax revenue is or may be
defrauded or which is contrary to the provisions of the law or to the proper execution
of the officers duty, commits an offense and is liable to a fine not exceeding 48
currency points (Shs 960,000), or imprisonment not exceeding two years or both.
 Any officer of the company who agrees to the proposal by a tax officer may be
convicted as above, once the information is known
 A person who deliberately fails to maintain proper records as required under the tax
law is liable to pay a penal tax equal to double the amount of tax payable by the
person for the period to which the failure relates
Importance of acting with integrity
 It increases the reputation of the entity. The higher the reputation, he more business
it draws and the more successful it becomes
 Integrity builds trust. At the most basic level, all business relationships are built on
trust. Strong customer and employee relationships increase the company’s
productivity and profitability
 The entity will avoid penalties, fines, investigations and even imprisonment of its
directors or owners
 Tax compliant businesses can easily win business from entities that require their
suppliers to tax compliant
 It makes it easy to get tax benefits from URA like WHT exemption and tax clearance
certificates
 Audits will be easy to conclude which saves time and eliminates stress
 Reduces tax litigation and saves on related legal fees
Meaning of tax evasion
Tax evasion is the illegal non -payment or underpayment of taxes, usually resulting from
making a false declaration or no declaration at all, of all taxes due to the relevant tax
authorities.
Consequences of tax evasion
Section 58 TPCA – a person who knowingly or recklessly
 makes a statement to a tax officer that is false or misleading in a material manner

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  Omits from a statement made to a tax officer any matter or thing without which the
statement is false or misleading in a material manner
 Commits an offense and is liable on conviction to a fine not exceeding 48 currency
pints (Shs 960,000) or to imprisonment not exceeding two years or both.
 a person who knowingly or recklessly does not maintain proper records as required
under the tax law commits an offense and is liable on conviction to a fine not
exceeding 48 currency pints (Shs 960,000) or to imprisonment not exceeding two
years or both.
 A person who deliberately fails to maintain proper records as required under the tax
law is liable to pay a penal tax equal to double the amount of tax payable by the
person for the period to which the failure relates.
Other general consequences of tax evasion
 Loss of reputation
 Loss of Government revenue
 Withdrawal of license by the regulatory authority in this case bank of Uganda
 Unfair competition
 Loss on tax payer benefits that accrue to tax compliant taxpayers

Solution 2
(a) Computation of partnership distributable profits
Shs '000'
Net profit 46,800
Add back
Partners' salaries (working 1) 288,000
Interest on capital (working 2) 60,000
Depreciation 279,000
673,800
Less
Capital allowances (working 3) (83,688)
Partnership chargeable Income 590,112
Less
Partners' salaries (288,000)
Interest on capital (60,000)
Partnership distributable profit 242,112
Working 1 -Partners salaries
Shs ‘000’ Shs ‘000’
Kasubi 10,000 x12 120,000
Kagolo 8,000 x12 96,000
Kalungi 6,000 x12 72,000
Total 288,000

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 Working 2 -Interest on capital
Shs ‘000’ Shs ‘000’
Kasubi 100,000 x0.10 10,000
Kagolo 200,000 x0.10 20,000
Kalungi 300,000 x0.10 30,000
Total 60,000
Working 3 - Capital allowances
shs '000' shs '000' shs '000' shs '000'
class I Class II Class IV Total
40% 35% 20%
TWDV 1/1/2018 26,325 108,280 176,300 310,905
additions - - - -
26,325 108,280 176,300 310,905
disposals - - - -
26,325 108,280 176,300 310,905
Depreciation 10,530 37,898 35,260 83,688
TWDV 31 /12/ 2018 15,795 70,382 141,040 227,217
(b) Tax liability for each partner
Shs '000' Shs '000' Shs '000' Total
Kasubi Kagolo Kalungi
Share of profit 121,056 80,704 40,352 242,112
Salaries 120,000 96,000 72,000 288,000
Interest on 10,000 20,000 30,000 60,000
capital
251,056 197,704 142,352 590,112

Tax payable (251,056- (197,704- (142,352-

4,920)*30%+ 4,920)*30%+ 4,920)*30%+
300=74,141 300=58,135 300=41,530
(251,056- (197,704- (142,352-
120,000)*10 120,000)*10 120,000)*10%
%=13,106 %=7,770 =2,235
87,247 65,905 43,765
c) Principles of taxation of partnerships
1. The presence or absence of a written partnership agreement is not decisive in
determining whether a partnership relationship exists between persons
2. A partnership shall be liable to furnish a partnership return of income , but shall not
be liable to pay tax on that income

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 3. Any election, notice, or statement required to be filed in relation to a partnership’s
activities shall be filed by the partnership
4. Partnership assets are treated as owned by the partnership and not the partners (
unless the context otherwise requires)
5. There is no carry forward of loss since all the losses are shared by the partners in
their profit sharing ratios

Solution 3
(a) (i)Computation of VAT payable/claimable
Input VAT
Imports
Date Item Cost Exchange Cost UGX VAT Comment
USD rate (18/118)
2 New clothing 29,000 3,650 105,850,000 16,146,610 Standard
5 Wheat flour 26,000 3,650 94,900,000 14,476,271 Standard
12 Animal feeds and 12,500 3,650 45,625,000 - Exempt
premixes
12 Drugs and 14,600 3,650 53,290,000 - Exempt
medicines
19 Mobile phone sets 27,500 3,650 100,375,000 15,311,441 Standard
25 Cooking oil 22,000 3,650 80,300,000 12,249,153 Standard
Purchased service
3 Rent 10,000,000 1,525,424 Standard
8 Electricity 1,500,000 228,814 Standard
10 Telephone 2,000,000 274,576 only 90%
claimable
30 Cleaning 1,000,000 152,542 Standard
30 Security 600,000 91,525 Standard
TOTAL INPUT 60,456,356
Output VAT
Date Item Amount Discount (5%) Net amount VAT (18%) Comment
Sugar to Massa of 80,000,000 (4,000,000) 76,000,000 13,680,000
1 Ibanda Standard
6 Animal feeds 13,000,000 - 13,000,000 - Exempt
8 Clothing 29,000,000 - 29,000,000 5,220,000 Standard
12 Wheat flour 100,000,000 (5,000,000) 95,000,000 17,100,000 Standard
14 Phone handsets 26,000,000 - 26,000,000 4,680,000 Standard
Drugs and 18,000,000 - 18,000,000 0 Exempt
18 medicines
Total output 266,000,000 257,000,000 40,680,000

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Proportion of taxable sales
Taxable sales 226,000,000 B
Total sales 257,000,000 C

B/C 87.9%
Claimable input is 87.9%
VAT Payable/ Claimable
Output VAT 40,680,000
Input VAT 53,163,955
VAT Claimable (12,483,955)
(a)(ii) Advice to Rodrich Supermarket Ltd on the claim of the bad debt
In order to claim a VAT refund for bad debts,
The person must have supplied the goods for consideration in money and paid the full
tax in the period of supply but has not received payment for all or part of the supply
within two years after the supply was made
 The person must have taken all reasonable steps to satisfy the Commissioner to
pursue payment and he or she reasonably believes that he or she will not be paid
 In this case the debt is not yet outstanding for two years and there is no indication
that all reasonable steps have been taken and failed. Although the main debtor is
dead, payment can still be pursued through the administrators of the estate.
 Therefore the refund claim made in the September return will not be honoured by
URA.
(b) Conditions for de-registration
 A person can apply for deregistration if that person has ceased to make supplies of
goods or services for consideration as part of the business activities of the person, or
 If, with respect to the to the most recent period of three calendar months, the
taxable value of his taxable supplies, exclusive of tax does not exceed ¼ of the
annual registration threshold (Shs 37,500,000) and if the value of his taxable supplies
exclusive of tax for the previous 12 calendar months does not exceed 75% of the
annual registration threshold (Shs 112,500,000)
 The Commissioner has the prerogative of granting or not granting the deregistration
 The commissioner shall serve a notice in writing of the decision taken within fourteen
days of making the decision
 A taxable person whose registration has been cancelled is liable for output VAT on all
goods on hand at the time of deregistration in respect of which he/she has claimed
input VAT
 The Commissioner will not agree to deregister because he has not ceased to deal in
taxable supplies and he he is also still above the threshold.

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Solution 4
(a) Computation of Makatu Uganda Limited’s chargeable income and tax payable
Item Amount Shs Comments
‘000’
Determination of Net profit
Incomes 34,700,000
Less Expenses (2,325,800)
Net profit 32,374,200
Add back
Expenses related to treasury 200,000
bills
Security - apartments 4,800
Painting and repairs 35,000
32,614,000
Less
Interest on treasury bills (20,000,000) WHT Tax is final tax
Dividend received from Makura (3,000,000) Income is exempt from tax (section
Ltd 74) Makatu controls more than 25%
of the voting power of Makura
Rental income (1,500,000) Taxed separately
Chargeable income 8,114,000
Tax payable (30%) 2,434,200
Less
WHT on interest from Global (300,000) DTA rate 10% (3,000,000 * 10%)
Bank Mauritius
WHT on Dividend from Trading (435,000) DTA rate 15% (2,900,000 * 15%)
UK Ltd
WHT on interest on fixed (375,000) WHT rate is 15% (2,500,000 *15%)
deposit account
WHT on dividend from Biashara (270,000) WHT rate is 15% (1,800,000 *15%)
Uganda Limited
Balance of tax payable 1,054,200
Total
Rental income tax
Shs ‘000’
Rental income 1,500,000
Less expenses
Security (4,800)
Painting and repairs (35,000)
Chargeable income 1,460,200
Tax (30%) 438,060
Total
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 Total tax outstanding Shs 438,060,000 +1,054,200,000 = 1,492,260,000.
(b) The transaction will be taxable because any distribution made to shareholders in the
course of a liquidation is treated as payment of dividend
Definition of a dividend; Dividend includes;
 where a company issues debentures or redeemable preference shares to a shareholder,
in respect of which the shareholder gave no consideration, an amount equal to the
greater of the nominal or redeemable value of the debentures or shares
 where a company issues debentures or redeemable preference shares to a shareholder,
in respect of which the shareholder gave consideration which is less than the greater of
the nominal or redeemable value , an amount equal to the excess
 any distribution upon redemption or cancellation of a share, or made in the course of
liquidation, in excess of the nominal value of the share redeemed , cancelled , or subject
to liquidation
 in case of a partial return of capital , any payment made in excess of the amount by
which the nominal value of the shares was reduced
 in the case of a reconstruction of a company, any payment made in respect of the
shares in the company in excess of the nominal value of the shares before the
reconstruction
 the amount of any loan, the amount of any payment for an asset or services ,the value
of any asset or services provided , or the amount of any debt obligation released, by a
company to, or in favour of, a shareholder of the company or an associate of a
shareholder to the extent to which the transaction is, in substance, a distribution of
profits, but does not include a distribution made by a building society
 the issue of bonus shares to shareholders. However, bonus shares shall only be taxable
upon disposal

Solution 5
(a) (i)
Determination of Customs Value (CIF)
USD/KSh EX UGX Comment
Rate
Commercial invoice 30,000 3,680 110,400,000
Shipping to Mombasa 2,500 3,680 9,200,000
Insurance on board 600 3,680 2,208,000
Transport from Mombasa 100,000 28 - not part of
customs value
Storage at Rotterdam 400 3,680 1,472,000
Storage at Mombasa 10,000 28 - not part of
customs value
Customs value 123,280,000

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Determination of taxes payable
Shs
Import duty (Customs Value * 123,280,000*50% 61,640,000
50% - Sensitive Item)
VAT (Customs Value + Import (123,280,000+61,640,000)*18% 33,285,600
Duty *18%)
WHT (Customs Value *6%) 123,280,000*6% 7,396,800
Taxes payable 102,322,400
(a) (ii) Consequences of concealing goods or being in possession of uncustomed goods
A person who conceals any goods commits an offence and shall be liable on conviction to 5
years or a fine equal to 50% of the dutiable value or both.
In addition to paying the fine, the duty due on the goods is also payable
Fine payable USD 1,500 * 3,680 * 50% = 2,760,000
Taxes payable
Import duty USD 1,500 * 3,680 = 5,520,000 * 50% = 2,760,000.
VAT 5,520,000+ 2,760,000 *18% = 1,490,400.
WHT 5,520,000 *6% = 331,200.
Immediate benefits of being an AEO
 pre arrival clearance of cargo
 electronic submission of documents for cargo clearance
 priority treatment at all times while dealing with customs
 choice of place of physical examination in case there is need to perform physical
examination on cargo
 automatic renewal of licenses once all the necessary fees are paid
 self management of bonded warehouses for bonded warehouse operations
 withholding tax exemption status
Long term benefits
 reduction in the cost of doing business
 enhanced reputation and image
 increased turnover
 improved quality of service
 trustworthy and compliant business
 improved internal control systems.

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