CPA 11 - TAXATION SOLUTIONS

Solution 1
(a) Computation of BSHs chargeable income and tax liability for the year ended
31 December 2023
Shs ‘000’ Shs ‘000’
Profit before tax 1,450,311
Add back:
Depreciation 3,060
Provisions for bad and doubtful debts 1,224
Payment to suppliers with no e-invoice 765
Fines paid to KCCA for sound limit violations 1,224
Acquisition of a new accounting software 36,074
End of year staff party 101,007
Penalties for failing to maintain proper books of accounts 57,718
Payment to a PR firm to build brand recognition 115,436
Capitalized Interest 26,920 343,428

Less:
Revenue from the ATC 40,626
Interest Earned from treasury bills 10,157
Amortized cost of software 7,215
Capital Allowance 461,400
IBD 52,011 (571,409)
Chargeable Income 1,222,330
Tax at 30% 366,699
Less provisional tax paid (55,000)
Creditable WHT (122,000)
Tax payable 189,699
Amortisation Shs ‘000’
Accounting software 36,074
Useful Life 5
Capital allowance 7,215

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Wear & Tear Class I Class II Class III Total
Opening WDV 158,630 - 1,852,340 2,010,970
Additions: -
Generator 74,000 74,000
Conference facility 12,300 12,300
Wall projectors 5,900 5,900
Computers 18,000
Photocopier 18,500
Disposal:
Assorted furniture (6,200)
Old Generator (3,100)
176,630 - 1,953,740
Capital allowance 70,652 - 390,748 461’400
Industrial Building Deductions
Hotel Building
Qualifying amount 825,000
IBD at 5% 41,250

Building Extension 400,000

Capitalized Interest 26,920
426,920
IBD at 5% 21,346
Apportioned for 184 days 10,761

Total IBD 52,011

Computation of rental tax
Rental Income from ATC 40,626
Less allowable deduction (20,313)
20,313
Tax at 30% 6,094
Rights of the Taxpayer
 Right to fair treatment: Taxpayers have a right to be treated fairly in all their
dealings with URA. Tax laws and procedures shall be applied consistently to
all taxpayers.
 Right to finality: Taxpayers have the right to know the maximum amount of
time required to challenge URA’s tax related decisions, as well as the
maximum amount of time URA has to audit a particular tax year. Taxpayers
have the right to know when URA has finalized an audit.
 Right to privacy: Taxpayers have the right to expect that any URA inquiries,
examinations, investigations or enforcement actions will comply with the law
and be no more intrusive than necessary and will respect all due process
rights, including search and seizure protections
 Right to confidentiality: Taxpayers have the right to expect that any
information they provide to URA will not be disclosed unless authorized by the
taxpayer or by law. Taxpayers have the right to expect appropriate action to

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 be taken against URA employees who wrongfully use or disclose taxpayer
information
 Right to be informed: Taxpayers have the right to know what they need to do
to comply with the tax laws. They are entitled to clear explanations of the law
and URA procedures in all tax forms, instructions, publication, notices and
correspondences. They have the right to be informed of the URA decisions
about their tax accounts and to receive clear explanations of the outcomes.
 Right to timely, quality and professional services: Taxpayers have the right to
receive prompt, courteous and professional assistance in their dealings with
URA and to receive clear and easily understandable communications from
URA.
 Right to representation: Taxpayer reserves the right to appoint and retain an
authorised representative such as a tax agent or clearing agent to represent
them in their dealings with URA
 Right to challenge and/or object: Taxpayers have the right to raise objections
and provide additional documentation in response to tax decision and to
expect that URA will consider their objections promptly and fairly, and to
receive a response from URA within the period stipulated in the Law.
 Right to appeal: Taxpayers have a right of appeal to an independent tax
tribunal or courts of law in accordance with the law on any matter.
 Refund Claims: Taxpayers have the obligation to submit their tax refund
claims using prescribed forms and attach required evidence to support the
claim.
Obligations of the taxpayer
 Registration: All eligible taxpayers should voluntarily register with URA.
 Refund claims: Taxpayers have the obligation to submit their tax refund
claims using prescribed forms and attach required evidence to support the
claim.
 Keeping of proper records: The Taxpayer is obliged to keep accurate records
of accounts, documents and any other relevant information as prescribed
under the law
 File tax returns: Taxpayers are obliged to file accurate and timely tax returns,
customs entries or any information relating to their tax obligations
 Payment of taxes: Taxpayers are obliged to pay tax in accordance with the
law.
 Avoid tax evasion: Taxpayers should not indulge in any form of tax evasion
and/or other illegal practices that cause revenue leakages.
 Compliance: Taxpayers must comply with their tax obligations as stipulated
by the relevant laws. Taxpayers must comply with all processes and
procedures as stipulated by law and administratively to facilitate revenue
collection
 Update personal information: Taxpayers are required to regularly update
personal information and payment details with URA.

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Solution 2
(a) Computation the partnership distributable profits for the year ended 31
December, 2023

Shs ‘000’
Profit before tax 164,064
Add back:
Depreciation & amortisation 13,915
Interest paid to Joe 6,000
Interest paid to Grey 4,000
Retainer paid to Joe 21,600
Less:
Advance income (50%) training income (29,306)
Interest from unit trust investments (46,248)
Interest from fixed deposits (11,562)
Capital allowance (47,820)
Partnership profits 74,643

Computation of wear & tear

Descriptions Cost Class I Class II Class III
Opening WDV 64,250 - 110,600 174,850
Additions -
Totals 64,250 - 110,600 174,850
Capital Allowance 25,700 22,120.0 47,820
Partnership profits 74,643
Less retainer paid to Joe (21,600)
Less interest paid to Joe (6,000)
Less interest paid to Grey (4,000)
Profit to be shared 43,043
Profit allocation by partner

Profit Ratio Joe (60%) Grey (40%) Total (100%)

Profit to be shared 25,826 17,217 43,043
Retainer paid to Joe - 21,600 21,600
Interest paid to Joe 6,000 - 6,000
Interest paid to Grey - 4,000 4,000
Income for each partner 31,826 42,817 74,643

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(b) Joe's employment income

Description Shs ‘000’ Comment

Gross monthly salary 81,600 Taxable
Transport allowance 5,400 Taxable
Annual flight instructor license fee - Allowable
Monthly airtime & data 2,400 Taxable
Chargeable income 89,400
PAYE withheld
300,000+30%(89,400,000-4,920,000) 25,644
(c) Different forms of tax assessment
 Self-Assessment: This is a tax form prepared by the tax payer showing
the taxable income generated and the tax payable on it
 Default Assessment: This is a tax form showing the estimated taxable
income generated and the tax payable on it issued by the
Commissioner due to failure to furnish a self-assessment by the
required date. The taxpayer will receive a notice in writing showing the
amount of tax assessed, and any penal tax and interest payable in
respect of the amount assessed, assessed period, the due date for
payment and the objection criteria.
 Additional Assessment: This is an amendment of an original tax
assessment issued by the commissioner for any tax period to ensure
that the correct tax liability is obtained. It is issued at any time, if fraud
or any wilful neglect has been committed by, or on behalf of the
taxpayer or new information has been discovered in relation to the tax
payable for a tax period.
Solution 3
(a) VAT claimable by GEL for the month of March 2024
Amount VAT (18%) Comment
Output - VAT exclusive
Cement for MD 18,000,000 3,240,000 Standard rated
Supplies to Rock 22,000,000 - Exempt
Advance payment 16,800,000 3,024,000 Standard rated
Contract signed - - No supply made
Export to Congo 17,000,000 - Zero rated
Local sales less discount 40,850,000 7,353,000 Standard rated
13,617,000

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Input - VAT inclusive
Delivery Truck 33,000,000 5,033,898 Standard rated
Stock from Kima Cement 45,000,000 6,864,407 Standard rated
Administrative Expenses:
Staff Salaries 12,520,000 - Out of scope
Telephone expenses 235,000 32,263 10% not allowed
Fuel for distribution 2,113,000 - Not allowed
Packaging materials 1,005,000 153,305 Standard rated
Electricity for office 221,000 33,712 Standard rated
Water for Office 85,000 12,966 Standard rated
12,130,551
VAT Claimable:
Output VAT (sales) 13,617,000
Less input VAT creditable (12,130,551)
Less loss of goods (2,250,000)
Less Offset brought forward (825,000)
(1,588,551)
(b) Penalties imposed for noncompliance with the VAT Act
 A person who fails to apply for registration as required by Section 7(1) or (5)
is liable to pay a penal tax equal to double the amount of tax payable during
the period commencing on the last day of the application period in Section
7(1) until either the person files an application for registration with the
Commissioner General or the Commissioner General registers the person
under Section 8(6).
 A person who fails to lodge a return within the required time under this Act is
liable to pay a penal tax amounting to whichever is the greater of the
following:— (a) two hundred thousand shillings; or (b) an interest charge for
the period the return is outstanding calculated according to the formula
specified in the Fifth Schedule.
 A person who fails to pay tax imposed under this Act on or before the due
date is liable to pay a penal tax on the unpaid tax at a rate specified in the
Fifth Schedule for the tax which is outstanding.
 If a person pays a penal tax under subsection (3) and the tax to which it
relates is found not to have been due and payable by the person and is
refunded, then the penal tax, or so much of the penal tax as relates to the
amount of the refund, shall also be refunded to that person.
 A person who fails to maintain proper records in a tax period in accordance
with the requirements of this Act is liable to pay a penal tax equal to double
the amount of tax payable by the person for the tax period.
 Where a person makes a statement or declaration to an official of the Uganda
Revenue Authority that is false or misleading in a material particular or omits
from a statement made to an official of the Uganda Revenue Authority any
matter or thing without which the statement is misleading in a material
particular. That person is liable to pay penal tax equal to double the amount
of the excess tax, refund or claim

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Solution 4
(a) Computation of customs value and import taxes payable
Exchange. Amount
Rate
Amount Paid 122,000 3,600 439,200,000
Advance Payment 10% 12,200 3,600 43,920,000
Wooden Boxes 820 3,600 2,952,000
Transportation to the Port of Santos 125 3,600 450,000
Port handling charges at Santos 205 3,600 738,000
Shipment from Santos to Elizabeth 406 3,600 1,461,600
Port handling charges at Elizabeth (rand) 1900 205 389,500
Freight from South Africa to Mombasa 1620 3,600 5,832,000
Insurance 1,660 3,600 5,976,000
Customs Value 500,919,100
Import Duty
CIF 500,919,100.00
Rate 35%
175,321,685.00

Excise Duty (CIF + ID) 676,240,785.00

40%
270,496,314.00

VAT (CIF+ID+ED) 946,737,099.00

18%
170,412,677.82

WHT 500,919,100.00
6%
30,055,146.00

Infrastructure Levy 500,919,100.00

1.50%
7,513,786.50

Total Tax 653,799,609.32

(b) Advantages and dis-advantages of Common Market
Advantages:
 Efficiency in production: For an economy, a common market facilitates
efficiency among members – factors of production become more
efficiently allocated, resulting in stronger economic growth. As the
market becomes more efficient, inefficient companies eventually shut
down due to intense competition.

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  Economies of scale: Companies can freely sell in member countries’
markets without worrying about unfair competition due to trade
barriers
 Competition increases: The number of competitors is increasing, not
only from domestic but also from companies from other member
countries. Increased competition promotes innovation, in which
companies must operate more competitively
 Wider employment opportunities: The workforce is more
geographically mobile among member countries. So, they can look for
better opportunities in other member countries
Disadvantages:
 Competition risk increases. Indeed, the competition promotes
innovation and efficiency in the economy. But, it also increases the
failure risk of domestic firms to survive.
 The workforce is vertically and horizontally immobile: Indeed, workers
can move from one country to another member country. However,
their mobility may still be limited due to inadequate skills and
education.
Solution 5
(a) The implications of GTL transactions:
Replacement Cost
Book Value 315,000,000
Replacement Costs 650,000,000
965,000,000
Insurance Compensation 400,000,000

Replacement Cost 565,000,000

Capital Gain on the disposal of the Land-cruiser

Cost of the business Asset 400,000,000

Less the depreciable Asset 60,000,000
340,000,000
Notional Depreciation at 20% per year
At the end of 2019 340,000,000
68,000,000
272,000,000

At the end of 2020 272,000,000

54,400,000
217,600,000

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At the end of 2021 217,600,000
43,520,000
174,080,000

At the end of 2022 174,080,000

34,816,000
Cost base 139,264,000
Sales proceeds (188,000*340000/400000) 159,800,000
Gain 20,536,000
Capital Gains Tax * 30% 6,160,800

Advance tax on transport Vehicles

10 ton trucks (5*50000*10) 2,500,000
Mini buses (8*20000*30 passengers) 4,800,000
Vans (6*20000*14 passengers) 1,680,000

(b) The circumstances under which no gain or loss is taken into account:
 A transfer of an asset between spouses
 A transfer of an asset between former spouses as part of a divorce
settlement or bona fide separation agreement
 An involuntary disposal of an asset to the extent to which the proceeds
are reinvested in an asset of a like kind within one year of the disposal
 The transmission of an asset to a trustee or beneficiary on the death of
a taxpayer
 Capital gains arising from the sale of investment interest of a
registered venture capital fund if at least fifty percent of the proceeds
on sale is reinvested within the year of income. a registered venture
capital fund shall be entitled to a non-recognition of a gain or loss
equivalent to the percentage of reinvested proceeds.

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