c4 Grande Finale Solving 2023 Nov (Set 1)

GRANDE FINALE PROBLEM-SOLVING SESSION
ADVANCED TAXATION (C4)

FOR NOVEMBER 2023 EXAMS
&
SET 1
Prepared By: Azizi Abdul Munisi [MIB, B.com Acc (Hons), CPA (T)] Keep in touch via: 075618794
0714818101|0734155200|info@covenantfinco.com | www.covenantfinco.com
ADVANCED TAXATION (C4) GRANDE FINALE SOLVING SESSION NOV 2023 SET 1
QUESTION ONE [Topic: REPATRIATED INCOME]

Mwandi Construction (Tanzania) Limited is a Tanzania branch of a Zambian incorporated
company. The following are the results of its operations for the year ended 31st December 2022:
TSZ ‘000’ TZS ‘000’
Turnover - 9,820,000
Cost of sales - (4,124,000)
Gross profit - 5,695,600
Add: Interest received - 32,000
Rent received - 4,800
- 5,732,400
Less: Expenses - -
Depreciation 2,112,000 -
Charitable and contribution 100,000 -
Repair and maintenance 35,000 -
Rent 484,000 -
Selling expenses 48,000 -
Transportation expenses 88,000 -
Miscellaneous expenses 300,000 -
Interest (Loan from Head Office) 32,000 -
Salaries and wages 736,000 -
Administrative overheads 1,620,000 -
Total Expenses 5,555,000
Profit before tax 177,400
Rent receivable is with respect to a machine leased to the office. Administrative overheads
include the following.
TZS ‘000’
Withholding taxes on management fees 2,350
Management fees paid to Head Office 18,000
Employee’s’ benefit 2,480
Directors’ fees 3,200
Travel expenses (Head Office directors 2,600
The following are details in connection with non-current assets of the company:
Tax Written Down Value (TWDV) at 1st January 2021
TZS ‘000’
Class 1 20,000
Class 2 103,000
Class 6 90,000
During the year, the company bought a new pant 120 million and two saloon cars at TZS 40 million
each. The plant was fixed in the assembling premises immediately. Class 6 previous years
depreciation allowances stand at TZS 60 million.
Other assets were as follows:
31st December 2021 31st December 2022
Receivables 85,000,000 100,000,000
Cash in hand 65,000,000 95,000,000
Bank 55,000,000 85,000,000
Net incoming for liabilities as at 1st January 2022 was TZS 35,000,000 and accumulated profit account
had a credit balance of TZS 499,000,000. It was further informed that during the year the branch had
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received a total of US$40,000 from its head office, half of it being an additional capital and remaining
amount being a working capital loans repayable in ten years.
Assume that the exchange rate is TZS 2,500/US and net incoming for liabilities as at 31 st December
2022 was TZS 40,000,000. Ignore withholding taxes.
REQUIRED:
(i) Briefly explain the rationale for taxing controlled foreign corporation. (3 marks)
(ii) Calculate the repatriated income, if any, by Mwandi Construction (Tanzania) Limited for the year of
income 2022. (17 marks)
[Topic: SPECIALIZED ENTITIES – CLUB AND TRADE ASSOCIATION]

MAMA CHAKULABORA (MC) is an association of the Dar es Salaam University College of Agriculture
Lecturers. The Association’s income depends on contribution from its members, investment income,
donations and some business income. Below is the statement of financial performance of MAMA
CHAKULABORA (MC) for the year ended 31st December 2022.
TZS.
Sales – to members 360,000,000
Sales to non-members 200,000,000
Total sales 560,000,000
Cost of sales (Note 1) 200,000,000
Gross Profit 360,000,000
Other Income (Note 2) 288,000,000
Total Income 648,000,000
Less: Expenses
Operating expenses (Note 3) 214,000,000
Administrative expenses (Note 4) 60,000,000
Marketing and finance cost (Note 5) 30,000,000
Total Expenses 304,000,000
Net Income 344,000,000
Note 1: Cost of sales includes:
(i) Exchange loss of TZS. 243,000 on the importation of goods
(ii) 30% of depreciation cost
Note 2: Analysis of other income revealed the following:
(i) TZS. 24,000,000 as dividends being:
- Dividend from Kwanza Ltd a resident corporation amounting to TZS. 8,000,000. The MAMA
CHAKULABORA (MC) owns 40% of the shares of Kwanza Ltd.
- Dividends amounting to TZS. 2,000,000 were received from Kazimbi Ltd, which is listed on DSE,
and owned at 22% by K100 Ltd a non- resident company.
- Dividends amounting to TZS.7,000,000 received from Wakwelam Company Ltd a resident company.
(ii) Other Investment income TZS.24,000,000
(iii) Members’ fees TZS.140,000,000
(i) Donations from members TZS.100,000,000
Note 3: Operating expenses includes:
(i) Penalties for VAT – TZS.6,500,000
(ii) Cost to prepare revised accounts – TZS.3,200,000
(iii) Salaries to staff for future services – TZS.12,000,000
(iv) Compensation of TZS.3,600,000 to terminated employees
(v) Incentives and staff promotions costs – TZS.2,400,000
(vi) 70% of deprecation cost
(vii) Tax expense TZS.65,150,000
Note 4: Administrative expenses include the following:
(i) Amortized amount to replace a roof – TZS.6,000,000

(ii) Legal cost for unsuccessful recovery of salaries from terminated employees – TZS.3,000,000
(iii) Management meetings expenses – TZS. 8,000,000
(iv) Management team travelling cost abroad for holiday vacation TZS. 39,000,000
(v) Cost to raise donation TZS. 6,000,000
Note 5: Marketing and finance costs include:
(i) Political parties’ contributions – TZS. 4,000,000
(ii) Cancellation of contract – TZS. 14,000,000
(iii) Managing Directors personal visitors entertainment expenses – TZS. 2,000,000
(iv) Payments made to remove erroneous terms of a loan contract – TZS. 182,000
(v) Interest on loan to Bank – TZS. 13,500,000
(vi) Additional information includes:
- The MAMA CHAKULABORA (MC) charged TZS. 30,000,000 as depreciation. Only 75% of the
depreciation charges qualify for tax deductions.
REQUIRED:
From the above information:
(i) Does the income of MAMA CHAKULABORA (MC) qualify for tax exemption according to
Income Tax Act CAP 332? Justify your answer with necessary computations.
(ii) Apply the provisions of the Income Tax Act CAP 332 to determine the adjusted taxable income for
MAMA CHAKULABORA (MC), (if any) for the year 2022.
QUESTION THREE [Topic: Tax Reform]
(a) Explain the principles of taxation of petroleum operations.
(b) Explain the meaning of the concept” Petroleum Agreement” as used in taxation of
petroleum operations.
(c) MCHV Company Ltd is engaged in petroleum operations. The following information is
extracted from the books of accounts of the company for the year ended 31 December, 2022.
(i) Crude oil exported 500,000 barrels
(ii) Domestic crude oil sales 550,000 barrels
TZS
Posted price for crude oil exported per barrel 125,600
Posted price for domestic crude oil per barrel 31,120
Income received from sale of data 950,000,000
Administrative expenses Note 1 1,000,000,000
Royalties on domestic sales 8,850,000,000
Royalties on export sales 5,000,000,000
Annual fees paid to National Oil Company 300,000,000
Deposit to decommissioning fund 103,000,000
Donations to charitable institutions 150,000,000
Loss carried forward from previous year Note 2 85,000,000,000
Production bonus paid 11,000,000,000
Capital expenditure capitalized during the year Note 3 200,300,000,000
Note 1-The administrative expenses above include the following:
Depreciation 500,000,000
Loss on exchange on transactions settlement 250,000,000
Loss on translation of financial statements 50,000,000
Fines for contravention of traffic rule by company's drivers 3,000,000
Note 2- Losses carried forward from previous year are classified as follows:
Loss from 2021 mid streaming activities 7,000,000,000
Loss from 2021 down streaming activities 3,000,000,000
Loss from 2021 petroleum business 75,000,000,000
85,000,000,000
Note 3-Capital expenditure capitalized;
Included in the capital expenditure was expenditure during the year on the following
Type Amount
Plant and Machinery 90,000,000,000
Fixture and fittings 56,000,000,000
Pipeline and storage – Local 40,000,000,000
Tanks 10,000,000,000
Administrative buildings 3,940,000,000
Five motor vehicles to be used by company directors each TZS 60,000,000 300,000,000
Office furniture 50,000,000
Office computers 10,000,000
Required
(a) Compute the tax liability of the company for year of income 2022.
QUESTION FOUR [Topic: Partnership Business and Company’s Business & Investment Income]
EK LINK Limited runs a hotel and resort training business, incorporated in Tanzania since 2015. EK
LINK is listed 40% of its equity shares in the Pangani Stock Exchange in 2021. The results for the year
ended 31st December 2022 are as follows in “000”:
Notes TZS. TZS.
Gross profit 69,558,750
Other income 1 2,818,500
72,377,250
Less: Expenses
Employee costs 2 34,435,000
Directors’ remuneration 10,200,000
Rent, rates & insurance 3 6,778,000
Light & heat 2,460,000
Telephone 1,582,000
Repairs & maintenance 4 6,334,000
Motor expenses 978,000
Professional fees 5 1,825,000
Loan interest 6 3,080,000
Bad debts 7 950,000
Sundry 8 775,000
Depreciation 4,800,000
Net profit before taxation 74,197,000
(1,819,750)
You are provided with the following additional information also in “000”:
1. Other income TZS.
Deposit interest received net of WHT 473,500
Rental income 2,125,000
Dividends 220,000
2,818,500
2. Employee costs
Staff wages 28,735,000
Staff Bonus 1,900,000
NSSF - contribution 2,800,000
NSSF for an employee that was terminated - penalties 1,000,000
34,435,000
3. Rent and insurance
Rent for resort 4,612,000
Insurance for resort and hotel 1,776,000
Insurance on rental properties 390,000
6,778,000
4. Repair & Maintenance
Repairs to rental properties 910,000
Extension to bar resorts 3,854,000
Repair to hotel rooms 1,022,000
General provision for repairs 548,000
6,334,000
5. Professional fees
Audit fees 900,000
Tax consultation fees 240,000
Legal fees for purchase of rental property 685,000
1,825,000
6. Loan interest
Bank charges and other finance costs 2,140,000
Loan interest on rental properties 940,000
Finance lease interest (See Note 10) 480,000
3,080,000
7. Bad debts
Bad debts written off 920,000
Bad debts recovered (280,000)
Increase in specific provision 580,000
Decrease in general provision (270,000)
950,000
8. Sundry
Trade subscription 130,000
Staff workers day party 180,000
Entertainment for clients 241,000
Political donation 224,000
775,000
9. Capital allowances
For the year of income 2022, the company has an annual wear & tear allowance of TZS.3,654,000 out
of which 30% relates to office equipment in the hotel and restaurant and the remaining to its
commercial rental properties.
10. Finance lease
The company purchased new equipment costing TZS.9,600,000 under finance lease. The capital
payments during the year of income were TZS.3,800,000 including finance lease interest of
TZS.480,000.
REQUIRED:
Compute the corporate tax payable for EK LINK Limited for the year ended 31st December 2022.
Clearly, separate business and investment income computations. (Total: 20 marks)
QUESTION FIVE [Topic: Transfer Pricing]

Babalao Company manufactures battery in Tanzania at a production cost of TZS 2,000,000
per unit and sells them to uncontrolled distributors and a wholly owned sales subsidiary in
Morocco for TZS 5,600,000 and TZS 5,200,000 respectively.
Morocco subsidiary sells the battery at a price of TZS 7,400,000. Other distributors of ovens to
restaurant in Morocco normally earn gross profit equal to 25% of selling price. Babalao’s main
competitors in Tanzania sell battery at an average 40% mark-up on cost. Babalao’s Morocco
sales subsidiary incurs operating costs other than costs of goods sold, that average TZS
1,400,000 per oven sold. The average operating profit margin earned by Morocco distributors
of battery is 18%.
Required:
(i) Calculate transfer price under the following methods

(ii) Comparable uncontrolled price method
(ii) Resale price method
(iii) Cost plus method
(iv) Transactional net margin method
(v) Profit split method – (contribution on the basis of functions preformed is taken at
75% and 25% for Babalao Company and Morocco subsidiary respectively)

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GRANDE FINALE PROBLEM-SOLVING SESSION

ADVANCED TAXATION (C4)

QUESTION ONE [Topic: REPATRIATED INCOME]

[Topic: SPECIALIZED ENTITIES – CLUB AND TRADE ASSOCIATION]

(i) Amortized amount to replace a roof – TZS.6,000,000

QUESTION FIVE [Topic: Transfer Pricing]

(i) Calculate transfer price under the following methods

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