Depreciation allowance QUESTION & SOLUTION -TAXATION

Question.              

The Union Bearing manufacturing company Ltd. (UBMC) is a firm manufacturing UNIMOG trucks, bases and spare parts.  It has been in Tanzania as a branch of the Scania Ltd. of Kenya, for the past 20 years.  UBMC has the following classes of depreciable assets pools with their respective tax written down values as at 1^st January 2005:

Class I   :   2,550,000      Class II   :   6,000,000      Class III   :   2,583,700/=

In July 2004, the company had attended the International trade fair organized by the BET, which was held at Kurasini, Dar es Salaam.  UBMC won the 2^nd prize – a valmet tractor, worth by then 3,600,000/=. This tractor was ordered by the government from the Valmet plant in DSM.  However, the delivery of the tractor was delayed, pending a price review. 

Prices were reviewed to 10 mill/= per tractor during August 2005.  The UBMC received the tractor on 16/8/2005 and used it from the same date.  Part of the plant and machinery was sold for 3 mill/= on 3/2/2005.  UBMC decided to purchase a new aircraft on 3/3/2005 for 50 mill/= to enable it coordinate with the head office at Mombasa where its Board of Directors met since 2000 to-date.  It also purchased a new ship of 500 tons for 60 mill/=.  Both were used from the same date. 

A new boiler was purchased for 600,000/= for the glass manufacturing section.  A concrete foundation was constructed for 300,000/= to install the boiler.  This was used from mid December 2005. On the 15/8/2005, the ship, the market value of which was estimated at 20 mill/= was stolen at DSM harbour.

The company was using tyres manufactured by the General Tyre (EA) Ltd. of Arusha Tanzania and radiators manufactured by the Afro Cooling Company Ltd. (ACCL) of Pugu Road DSM. Since these major sources of raw materials had financial problems, the UBMC advanced a 6mill/= loan to the ACCL for purchase of plant and machinery; and 10mill/= loan to General Tyre (EA) Ltd. for the purpose of purchasing a lorry to transport rubber from Iringa rubber farms.  Part of the office furniture was sold during December 2005 for 1.2 mill/=.  While the purchaser took the furniture during the same month, payment was to be made during March 2006.  

Required: Calculate the depreciation allowance that UBMC is eligible to claim from TRA according to the ITA, 2004 as at 31^st December 2005.

Suggested Solution

Tax Payer: Union Bearing Manufacturing Company Ltd. (UBMC)

Year of Income: 2005

Computation: Depreciation Allowances

DEPRECIABLE ASSETS	DEPRECIABLE ASSETS POOLS
CLASS	I (Tshs.)	II (Tshs.)	III (Tshs.)

payable annually in advance.

Required: Compute depreciation allowances to be granted to ABC Co. Ltd. for the year of income 2006 under the Income Tax Act, 2004.      

Suggested Solution Tax Payer: ABC Co. Ltd.

Year of Income: 2006

DEPRECIABLE ASSETS	DEPRECIABLE ASSETS POOLS (‘000)
CLASS	I (Tshs)	II (Tshs)	III (Tshs)	VI (Tshs.)
RATE – A	37.5%	25%	12.5%	5%
COST:
2 lorries, P&M (initial allow.), AC	40,000		2,000
Saloon,OF,                        factory building	15,000		4,200	24,000
Factory building				15,000
Factory     building alterations				4,500
	55,000	0	6,200	43,500
Additions:                        exchanged lorry,godown	24,000			175,000

*(93,000,000/= + 900,000/=) less 23,700,000/= or (93,000,000 – 23,250,000) + 450,000 

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Investment income - question and solution TAX

Question.              

The following information refers to Peter for the tax year 2009.

(1)     Peter owns two properties, which are let out. Both properties are freehold houses, with the first property being let out furnished and the second property being let out unfurnished.

(2)     The first property was let from 6 April 2009 to 31 August 2009 at a monthly rent of Tshs 500,000/= payable in advance in each month. On 31 August 2009 the tenant left owing two months’ rent which Peter was unable to recover and the Commissioner for Domestic Revenue had accepted the amount as bad debt. The property was not re-let before 5 April 2010. During March 2010 Peter spent Tshs 200,000/= repairing the roof of this property. 

(1)     The second property was purchased on 1 July 2009, and was then let from 1 August 2009 to 1 April 2010 at a monthly rent of Tshs 820,000/= payable in advance in every month. During July 2009 Peter spent Tshs 200,000 on advertising for tenants. For the period of 1 July 2009 to 1 April 2010 he paid loan interest of Tshs 1,000,000/= in respect of a loan that was taken out to purchase this property.

(2)     Peter insured both of his rental properties at a total cost of Tshs 660,000/= for the year ended 31 December 2009, and Tshs 900,000/= for the year ended 31 December 2010. The insurance is

(3)     Peter Sold his investment of 100 shares in Twiga Cement (Pty) Ltd costing 12,228,500/= were sold for 21,025,260/= in February 2009.

(4)     Peter also received a dividend of Tshs 2,000,000 during the year from Twiga Cement where he owns 5% of all shares and withholding tax of Tshs 100,000/= was deducted.

(5)     During the tax year 2009 Peter received bank interest of Tshs 1,000,000/= from DECI a financial institution based in Dar es Salaam.

Required:

Calculate the Investment Income of Peter for the year 2009.

Suggested Solution

Computation: Employment Income

Tax Payer: Peter

Year of Income: 2009

Residential Status: Resident Individual

Rent from properties (Final)	Nil
Bad Debt for the rent	Nil
Advertising expenditure for tenants	Nil
Loan interest paid	Nil
Insurance premium paid	Nil
Gain on sale of shares (21,025,260 – 12,228,500)	8,796,760
Dividend received (Final)	Nil
Interest earned from DECI (Final)	Nil
Taxable Investment Income	8,796,760

credits to: Kessy Juma :: http://www.taxation-tz.blogspot.com

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(Investment income) solution & question TAXATION

Question 6.              

AADU is a newly formed company carrying out fishing business. During

the first year (2008) of operation it made the following transactions:-

(i)       Received dividend from SHIDUSA Ltd a resident corporation amounting to TZS 6,000,000. AADU owns 40% of the shares of SHIDUSA Ltd.

(ii)     Dividends amounting to TZS 3,500,000 were received from KWENU Ltd, which is listed on the DSE, and owned 22% by TABU Ltd a nonresident company.

(iii)    Dividends amounting to TZS 1,550,000 received from CHUCHUMA Company Ltd a resident company.

(iv)    AADU has its office along Ali Hassan Mwinyi Road, the office was underutilized. The company decided to rent the front office to Juma Bakari a shop businessman, who used it as a shop after paying TZS 800,000 as rent.

(v)     During the year the company received TZS 400,000 as rent from Mr. James a Tanzanian, with respect of a house occupied by him situated at Changanyikeni-Dar es Salaam.

(vi)    Also the company received royalty from Madengu Ltd amounting to TZS 400,000 out of lease of Video tapes used for promotion. 

(i)       During the year, AADU sold 6 hectares of land which was at KUNDUCHI and received TZS 300 million. This land was purchased for 2,000 in 1970. Three years prior to its sale, this land has been used for as agricultural land.

In addition to those transactions it earned business profit of TZS 100 million.

REQUIRED:

By applying the relevant provisions of the ITA, 2004 compute the Investment Income, Total Income and Tax Payable of the company for the year ending 2008.

Suggested Solution

A thorough analysis of each item:

(i)       Dividend from SHIDUSA (6,000,000) – 

ð AADU’s Investment Income (Nil) – Final Withholding – S. 86 (1) (a)

ð SIDUSA’s withholding tax (Nil) – Exempted – S. 54 (2)

(ii)     Dividend from KWENU Ltd (3,500,000) – 

ð AADU’s Investment Income (Nil) – Final Withholding – S. 86 (1) (a)

ð KWENU’s withholding tax (5% x 3,500,000) – 1^st Schd para 4 (b) (i)

(iii)    Dividend from CHUCHUMA Ltd (1,550,000)

ð AADU’s Investment Income (Nil) – Final Withholding – S. 86 (1) (a)

ð KWENU’s withholding tax (10% x 1,550,000)– 1^st Schd para 4 (b) (i)

(iv)    Rent from Bakari (800,000)

ð AADU’s Investment Income  (800,000)  – S. 9 (a)

ð J. Bakari’s withholding tax (10% x 800,000) – S. 82(1) & (2)(a)

ð Tax credit to AADU (10% x 800,000) – S. 87

(v)     Rent from Mr. James(400,000)

ð AADU’s Investment Income (400,000) – S. 9(a)

ð Mr. James‘s withholding tax  – Not a withholding payment

(vi)    Royalty from MADENGU Ltd (400,000)

ð AADU’s Investment Income (400,000) – S. 9(a)

ð MADENGU’s withholding tax (15% x 400,000) – 1^st Schd para 4 (b)

ð Tax credit to AADU (15% x 400,000) – S. 87

(i)       Gain from sale of land at KUNDUCHI (300,000,000)

ð AADU’s Investment Income (300mil – 2,000 = 299,998,000)

ð AADU shall pay 10% x 299,998,000 as a single instalment on disposal as required by S. 90(1)(a)

ð Tax credit to AADU (10% x 299,998,000) – S. 90(7)

Computation: Investment Income, Total Income & Tax Payable by AADAU

Residential Status: Resident Corporation for 2008

Dividend fro SHIDUSA	Nil
Dividend from KWENU	Nil
Dividend from CHUCHUMA	Nil
Rent from Bakari	800,000
Rent from Mr. James	400,000
Royalty from MADENGU	400,000
Gain from sale of land at KUNDUCHI	299,998,000
Income from Investment	301,598,000
AADU’s Business Income	100,000,000
AADU’s Total Income	401,598,000
Tax thereon (30%)	120,479,400
Less: Tax credit available:
Tax withheld from rent by Bakari	(80,000)
Tax withheld from royalty by MADENGU	(60,000)
Single instalment tax paid on sale of land	(29,999,800)
Tax payable by AADU	90,339,600

credits to: Kessy Juma :: http://www.taxation-tz.blogspot.com

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Taxation - questions on returns, assesment; interests and penalties

 TAXATION TUTORIAL QUESTIONS

TAX PAYMENT PROCEDURES (Returns, Assessment, Interests and Penalties)

QUESTION ONE.

a) Briefly explain the following terms in relation to Income tax

       i. Returns of income

       ii. Final returns(FR)

       iii. Statement of estimated tax payable(SOETP)

b) Explain the contents of the statement of estimated tax payable and Final returns of income

c) State the due dates for submission of the statement of estimated tax payable(SOETP) and Final Returns (FR)

d) Explain the differences between the Statement of estimated tax payable(SOETP) and the Final return of income (ROI)

QUESTION TWO.

a) Explain the person not required to file the returns of income(ROI)

b) Explain disciplinary measures for failure to pay income tax on due dates

c) Briefly explain the following terms in relation to income tax

        i. Self assessment system

       ii. Jeopardy assessment

      iii. Best judgement assessment

       iv. Amended assessment

d) The Commissioner General may extend the due date for submission of Returns of income. Explain the conditions for such extension

QUESTION THREE.

KANYABUHURA CO. LTD (KCL) is a manufacturer of juice. KCL also has a fixed deposit Account with the NBC (T) Limited, which earns the company interest income of TShs. 1,600,000 during the year. The company’s estimate of its income for the YOI 2012 is 9,500,000. The accounting period of KCL is the calendar year, the company received its first payment of instalments of interest on the 20th of May 2012 of Tshs. 500,000 and withholding tax payment was Tshs. 50,000. Required:

Determine

a) Tax instalment payable on the 31th March 2012

b) Tax payable on the second instalments

c) Due date for submitting the final returns

QUESTION FOUR.

ABC Ltd’s YOI run from 1st January to 31st December each year.ABC Ltd submitted a SOETP on 6th may 2013, which showed an estimated total income for the YOI 2013 of Tshs 10,000,000. However, the company paid the first tax instalment of Tshs 750,000/= on 28th march 2013 Required:

Determined the penalty for failure to file the SOETP on due date by ABC Ltd according to TAA, 2015

QUESTION FIVE.

The IFMSOO Co. Ltd (ICL) of Dare s salaam filed a SOETP of Tshs. 4,040,000/= on the 15th April 2011 for YOI 2011 after having failed to furnish such a statement as required under s.89 of ITA 2004. The ICL’s 12 months accounting period normally runs from 1st September of each year. The ICL paid on 15th June 2011, the full taxes shown on the SOETP for the YOI 2011. However it furnished the ROI for the year on the 20th may 2012, which declared an income attracting a tax of Tshs. 4,800,000. On 30th July 2012 the commissioner made an adjusted assessment on the company for the year 2011 of tshs.10, 616,000 and on the same date served the company with notice of assessment under s.40 of TAA, 2015, which required the company to pay the tax within 30 days from the date of the adjusted assessment. On 15th September 2012 ACL paid all the tax payable on assessment. Assume statutory rate is 12% p.a. Required: calculate (if any) the following taxes per the Tax Administration Act (TAA) 2015 a. Penalty for failure to file statement of estimates and return of income under s.78(1), b. Interest for understating estimated tax payable by instalment under s.75, c. Interest for failure to pay tax on or before the due date under s.76 and d. Total tax payable on assessment

QUESTION SIX 

ABC Ltd is involved in manufacturing business in dare s salaam. During the year 200x the company submitted estimates of its total income for the year on which the estimated tax payable under s.89 of ITA 2004 was 20,000,000/=. The statement of estimates accompanied by the first instalment was submitted within the due date. The remaining instalments were paid within the due date. The company submitted the return of income on 31/12/200y despite several notices from the CIT requiring the company to submit its return of income within the due date. This return declared an income on which total tax payable was 30,000,000/=. Assume: 1. Final tax was paid on the due date of submission of return of income and assessment made on the same day. 2. Y1=200x & Y2 =200y 3. Statutory rate =15% p.a Required: Calculate the following with respect to Tax administration Act 2015

a) Penalty for late submission of estimates or return or income if any.

b) Interest for underestimation if any u/s 75.

c) Interest for late payment of tax u/s 76 if any.

d) Calculate the tax paid on the date when the ROI was submitted to the Commissioner General.

QUESTION SEVEN

 XYZ Ltd whose accounting period is normally coincides with the calendar year submitted its SOETP for the YOI 200x on 28th April 200x and paid the 1st instalment of estimated tax on that date. The remaining instalment was paid within the due dates. The SOETP had the following particulars.

i. Estimated income for the year 200,000,000/=

ii. Income tax paid on realization of business asset on 28th February 200x 150,000/=.

iii. Total tax withheld from income received by that person on 10th January from investments held by the company=250,000/= During the year the company distributed dividends to its shareholders amounting to 100,000,000/= for which the company did not withhold dividends and remit the same to the CIT. such distribution was made on 25th April 200x. After the end of the accounting period the CG issued a notice to the company requiring it to furnish the returns of income on or before 30th march 200y. However, the company did not respond promptly and hence this return were submitted on company paid the whole amount of taxes and penalties due as on that date on the same date. Assume: Withholding tax on dividends is 15% Statutory rate 12% p.a Required: by applying the provisions of the TAA 2015 and ITA 2004, calculate;

1) The amount paid on 28th April 200x

2) The amount paid on 2nd, 3rd & 4th instalments.

3) The amount paid on 2nd June 200y. 

QUESTION EIGHT 

Twashika fish processing Company Ltd of Maswa, Mwanza, and During the YOI 200 x the CG paid a physical visit to the company on 2nd February after discovering during his normal file audit and investigation that for the previous four past years the company’s books of accounts were not properly kept. After paying the visit on (2nd February 200x), the CG discovered that the company was not maintaining proper records and hence reminded the company to furnish the SOETP on or before 31/3/200x. However the company did not respond to this notice and hence the statement of estimated tax was submitted on 15/4/200x estimating the income whose total tax payable for the year was 150,000,000/= The company paid the 1st instalment on that date the remaining instalments were paid on due date. Assume the company furnished its ROI on 15/9/200y declaring an income of 600,000,000/= and paid the total tax due as on that date on the same date. Required: Assume: The statutory rate 12% p.a

      a) Calculate the total penalties due to that person.

     b) Calculate the amount paid on 1st, 2nd, 3rd and 4th instalments. c) Calculate the total tax paid              when the ROI was submitted on 15/9/200y.

QUESTION NINE 

Shabir Ltd is a resident company incorporated since 2001. During the YOI 200x the company, did not furnish the SOETP within the due date. The CIT sent a notice on 15th April 200x requiring the company to furnish the statement of estimated income within 15 days from the date of the notice. The Company responded to the Commissioners’ notice and submitted a statement estimating the income of 500,000,000/=. On 30th April, 200x and paid all the taxes due as on that date. On 17th august 200x the CG decided to pay a physical visit to the company’s premises and discovered that the company was not keeping was not keeping proper books of accounts and other records relating to tax matters. The company latter furnished the ROI on 18th august 200y declaring an income of 800,000,000/= and paid the remaining tax as on that date on the same date. Assume: Statutory rate of 13% p.a i. Calculate the tax paid on 30th April 200x ii. Calculate the total tax paid for the year. 

CLASS ILLUSTRATION Z 

Company Ltd furnished the Commissioner General (CG) its statement of estimated tax payable for the year of income 2008 on the 15th December 2007. The statement declared a total estimated taxable income of Tsh.160, 000,000 and Z paid the first installment on the same date it furnished the statement. Z's year of income normally runs from 1st August of each year. On 1st March 2008, Z paid the second installment before revising its estimates to a taxable income of Tsh.190, 000,000 from 1st April 2008. The rest of the installments were paid on their due dates but Z failed to file the return of income for the year of income 2008 as required under section 91 of the Income Tax Act, 2004. On 21st May 2009, the CG made a best judgment assessment of a total taxable income of Tsh. 280,000,000. Z paid the tax on assessment within the date specified by the CG in the notice of assessment. Assume statutory interest rate is 20% p.a. 

Required: 

    a) State the due dates for submission of statement of estimated tax payable and final returns

    b) State the due dates for payments of installment taxes and final tax

    c) Calculate the amount of tax payable on the 2nd and 3rd installments.

   d) Determine the tax payable on assessment as at 21st May 2009, taking in account all taxes                   payable as a result of any Z’s non-compliance. (All amounts to the nearest Tsh.)

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