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Marc 2021

Tax notes
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Accounting and finance

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THE PUBLI C ACCOUNTANTS EXAMI NATI ONS BOARD

A Committee of the Council of I CPAU

CPA ( U) EXAMI NATI ONS

LEVEL TWO

ADVANCED TAXATI ON – PAPER 9

FRI DAY 19 MARCH, 2021

I NSTRUCTI ONS TO CANDI DATES:

1. Time allowed: 3 hours 15 minutes.

The first 15 minutes of this examination have been designated for reading

time. You may not start to write your answer during this time.

2. Section A has one compulsory question carrying 40 marks.

3. Section B has four questions and only three questions are to be

attempted. Each question carries 20 marks.

4. Rates of tax are provided on page 12 – 13.

5. Write your answer to each question on a fresh in your answer booklet.

6. Please, read further instructions on the answer booklet, before attempting

any question.

 2021 Public Accountants Examinations Board

SECTI ON A

This section has one compulsory question to be attempted

Question 1

(a) Kaawa Uganda Limited (KUL), a private limited liability company registered

in Uganda, has been engaged in the business of growing, processing and

export of coffee since 1 July 2016. The company owns a large coffee farm

in Mubende district but the coffee processing is carried out in Kampala,

where the company owns a processing and packaging factory in Nakawa

industrial area.

The company’s shareholding is 90% by Great Coffee Inc, a company

incorporated in the United Kingdom and 10% by Mr. Mawanvu, a resident

in Uganda.

The transportation of the raw coffee from the farm to the factory and the

processed coffee to the port of Mombasa in Kenya is done by Kaawa

Transporters Limited, which is owned 80% by Great Coffee Inc and 20%

by Mr Mawanvu.

The company’s statement of profit or loss and other comprehensive

income for the year ended 30 June, 2020 was as follows:

Note Shs ‘000’

Revenue 1 23,535,

Cost of sales 2 (6,870,900)

Gross profit 16,664,

Administrative expenses 3 (7,214,300)

Selling and distribution expenses 4 (5,895,700)

Finance costs 5 (450,000)

Other expenses 6 (620,000)

Net profit before tax 2,484,

Tax (745,296)

Net profit after tax 1,739,

The following information is available:

1. Included in the revenue are the following amounts:

Shs ‘000’

Exports of coffee 19,200,

Local sales of coffee husks 4,200,

Unrealised foreign exchange gains 135,

4. Selling and distribution expenses include:

Shs'000'

Donation to Uganda Manufacturers Association (the

association has an exemption certificate from URA)

130,

Donation to Makerere University Agriculture Department (

research in new methods of improving coffee)

250,

Advertising campaigns 2,897,

Staff field allowances 1,680,

Motor vehicle fuel 938,

Total 5,895,

5. Finance costs comprise of the following:

 Interest of Shs 320 million paid to Great Coffee Inc for the

loan advanced to finance working capital.

 Shs 130 million was paid to Global Commercial Bank to service

the ongoing loan.

6. Included in other expenses is an amount of Shs 120 million that was

an amount advanced to senior staff members as school fees for their

children at Modern International School in Kampala. No taxes are

paid on the benefit.

7. Asset additions and disposals:

 Written down balances as at 30 June, 2019:

Class: Shs ‘000’

I 125,

II 230,

III 1,342,

IV 486,

Total 2,185,

 The qualifying cost for the factory building when it was first

put to use on 1 July, 2016 was Shs 1 billion and 20% of the

building is used as office space.

 Assets acquired during the year ended 30 June, 2020.

Asset Shs ‘million’

10 coffee colour sorters to be used at the

farm in Mubende at Shs 50 million each

500

Construction of a green house 180

Extension of water drainage channels 50

10 lorries of capacity 10 tons at Shs 85

million each

850

Replacement of the coffee processor at

Nakawa Industrial Area

1,

 Disposal of assets during the year ended 30 June, 2020.

The old processor was sold for Shs 450 million but the net

book value at the time of sale was Shs 590 million.

8. The company paid provisional tax of Shs 592,890,000 on 30 June

2020. The self assessment return of the company indicated that

there was a loss carried forward of Shs 901,330,400 as at 30 June

2019.

9. The final income tax was filed on 31 January, 2021 and the

company had not requested for an extension of the due date for

filing.

Required:

(i) Compute KUL’s chargeable income and tax payable for the

year ended 30 June, 2020.

( 26 marks)

(ii) Advise KUL on any penalties and or interest due on filing the

return on 31 January, 2021.

( 4 marks)

(b) Mr. Mawanvu attended a tax awareness seminar organised by Big & Tall

Certified Public Accountants (BT CPA). During the seminar, the tax partner

of BT CPA mentioned that when a person is trading through many related

companies, there are ways one can plan his taxes and be able to minimise

taxes payable. Since Mr. Mawanvu is a shareholder in both Kaawa Uganda

Limited and Kaawa Transporters Limited, he found the topic useful but did

not understand how tax planning could help him in particular. He has

approached you as a tax expert to help him out.

Required:

Explain to Mr. Mawanvu the meaning of tax planning advising him on the

planning ideas that would be of help in his type of business.

(Hint: Please limit your comments to income tax only)

( 10 marks)

( Total 40 marks)

In addition to payment of mortgage interest of Shs 12 million during the year

ended 30 June 2020, Mr. Byakatonda also paid the following towards maintaining

the rental houses:

Details Shs ‘000’

Security guards 2,

Property rates 2,

Maintenance 10,

Required:

(a) Compute Mr. Byakatonda Severino’s chargeable income and tax liability for

the year ended 30 June 2020, explaining clearly why some incomes may

have been omitted.

( 13 marks)

(b) Explain the circumstances under which an individual taxpayer is considered

to be resident under the provisions of the Income Tax Act Cap 340.

( 4 marks)

(c) Differentiate the tax treatment of income earned by a non resident

individual from that of a resident individual.

( 3 marks)

( Total 20 marks)

Question 3

(a) Wire Technologies Uganda Limited is a subsidiary of Wire Technologies

International Ltd, incorporated in the Netherlands. The company provides

services in the telecommunications sector in Uganda and abroad. The

company is registered for all the tax heads and has been registered for

VAT since June 2010.

The transactions for the company for the month of December 2020 are as

follows:

Revenue from services provided:

Customer Amount (USD)

Beat Telcom Uganda Ltd (Uganda) 680,

Stop Telcom Uganda Ltd ( Uganda) 255,

Beat Telcom Rwanda Ltd (Rwanda) 123,

Stop Telcom Zambia Ltd (Zambia) 89,

Total 1,148,

Other sales:

An old motor vehicle (Mitsubishi Pajero) was sold for Shs 11,450,

Purchases and payments:

Description: Amount Shs ‘000’

Paid for the supply of telecom installation services by

Bemba Limited

1,253,

Paid for the supply of telephone services by Beat

Telecom Uganda Ltd

50,

Paid for the supply of office consumables (all standard

rated) by Good Deal Supermarket

12,

Paid for a motor vehicle (Land cruiser Prado) from the

car bond at Nakawa

85,

Paid staff salaries for the month of September 1,560,

Bought unimproved Land in Luwero district 580,

Paid audit fees to Allied CPA Consultants 15,

Paid rent for September 330,

Total 3,887,

Other payments:

During December 2020, the company paid Wire Technologies International

Ltd an amount of USD 50,000 as payment for management services

provided by the parent company.

The company had a VAT offset brought forward from November 2020 of

Shs 124,390,000.

Notes:

 All sales are VAT inclusive where applicable.

 All purchases are VAT exclusive where applicable.

 The company trades with only VAT registered entities.

 The exchange rate of the USD to Shs for the month of December

2020 as posted on the URA portal was Shs 3,650.

Required:

Advise the management of Wire Technologies Uganda Limited on the VAT

payable or claimable for the month of December 2020.

( 12 marks)

(b) A Uganda Revenue Compliance officer notified the company’s accountant

that the company was likely to be penalised for the claim of incorrect VAT.

On the review of the return filed for November 2020, it was found that

included in the purchases claimed were the following invoices, all VAT

exclusive:

The Uganda Revenue Authority is not comfortable with the information

and is of the view that the management fee cost paid to Mauritius is a tax

avoidance scheme since in their opinion it is a duplication of the other

services provided in the country.

Required:

(i) Explain to the management of VUL the powers of the Commissioner

in the circumstances where he/ she suspects a tax payer’s

transaction to be a tax avoidance scheme.

( 4 marks)

(ii) Explain the likely tax implication of the Commissioner’s action.

( 3 marks)

(b) The company has been put on alert to prove to the Uganda Revenue

Authority that the management fees charged have been determined at

arm’s length price.

Required:

Provide the documentation that the company is required to provide as

evidence that the management fees charged have been determined at an

arm’s length price.

( 7 marks)

(c) Multinational entities (MNEs) usually plan their taxation policies involving

locating most of the group activities in “Tax Havens”.

Required:

Describe what you understand by “Tax Haven” explaining at least four

characteristics of a tax haven.

( 6 marks)

( Total 20 marks)

Question 5

(a) Alpha Oil Limited (AOL) is a licensee in the Albertine Region. On 1 June

2020, AOL entered an agreement with Beta Oil Limited (BOL), also a

licensee to farm out a quarter (1/ 4) of its interest in the exploration area in

order to raise capital to participate more meaningfully in the commercial

production phase.

AOL engaged the services of Oil International Negotiators (OIN), a

company resident in the United Kingdom, in order to determine the most

efficient consideration for the deal. OI N charged a fee of USD 100,

that was invoiced in advance on 1 June, 2020. The negotiations between

the two parties were concluded two months later on 2 August 2020, on

which date AOL transferred the agreed fees to the account of OIN in

London.

Both AOL and BOL agreed to the consideration for the farm out deal at

USD 3 million, which BOL transferred to AOL account on 2 August, 2020.

AOL started the oil exploration work in the Albertine Region in 2005 and

the total exploration expenditure incurred up to 31 May, 2020 was USD 2.

million. AOL will continue to hold their interest in three quarters of the

exploration area.

The average exchange rates of the Shs to the USD were:

Shs

 June 2020 3,

 July 2020 3,

 August 2020 3,

Required:

Advise the management of AOL on its tax exposure of the farm out

agreement.

( 10 marks)

(b) A licensee is required to file his return with the URA in accordance with

section 93 of the Income Tax Act and sections 16 and 19 of the Tax

Procedures Code Act but with some modifications.

Required:

Explain the modifications related to filing of returns that will apply to a

licensee in accordance with section 89O of the income Tax Act.

( 5 marks)

(c) Define what is meant by “petroleum development expenditure” and

explain the tax provisions relating to “petroleum development expenditure”

in accordance with section 89 of the Income Tax Act.

( 5 marks)

( Total 20 marks)

Small Business Taxpayers Tax Rates w here the gross turnover is below Shs 50 million

(i) Kampala City and Divisions of Kampala

Turnover

Business Trade Betw een Betw een Betw een

Shs 35 – 50 million Shs 20 – 35 million Shs 10 – 20 million

General trade 500,000 400,000 250,

Carpentry/ metal workshops 500,000 400,000 250,

Garages (motor vehicle repair) 550,000 450,000 300,

Hair and beauty salons 550,000 400,000 300,

Restaurants or bars 550,000 450,000 300,

Drug shops 500,000 350,000 100,

Others 450,000 300,000 200,

(ii) Municipalities

Turnover

Business Trade Betw een Betw een Betw een

Shs 35 – 50 million Shs 20 - 35million Shs 10 - 20 million

General trade 400,000 300,000 150,

Carpentry/ metal workshops 400,000 300,000 150,

Garages (motor vehicle repair) 450,000 350,000 200,

Hair and beauty salons 450,000 350,000 200,

Restaurants or bars 450 ,000 350,000 200,

Drug shops 400,000 300,000 150,

Others 400,000 350,000 150,

(iii) Towns and Trading Centres

Turnover

Business Trade Betw een Betw een Betw een

Shs 35 - 50 million Shs 20 - 35 million Shs 10 - 20 million

General trade 300,0 00 200,000 100,

Carpentry / metal workshops 300,000 200,000 100,

Garages (motor vehicle repair) 350,000 250,000 100,

Hair and beauty salons 350,000 250,000 100,

Restaurants or bars 350,000 250,000 100,

Drug shops 300,000 200,000 100,

Others 300,000 250,000 100,

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Marc 2021

Course: Accounting and finance

88 Documents
Students shared 88 documents in this course

University: Kyambogo University

Was this document helpful?
THE PUBLI C ACCOUNTANTS EXAMI NATI ONS BOARD
A Committee of the Council of ICPAU
CPA ( U) EXAMI NATI ONS
LEVEL TWO
ADVANCED TAXATI ON – PAPER 9
FRI DAY 19 MARCH, 2021
I NSTRUCTI ONS TO CANDI DATES:
1. Time allowed: 3 hours 15 minutes.
The first 15 minutes of this examination have been designated for reading
time. You may not start to write your answer during this time.
2. Section A has one compulsory question carrying 40 marks.
3. Section B has four questions and only three questions are to be
attempted. Each question carries 20 marks.
4. Rates of tax are provided on page 12 – 13.
5. Write your answer to each question on a fresh in your answer booklet.
6. Please, read further instructions on the answer booklet, before attempting
any question.
2021 Public Accountant s Examinat ions Board

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