(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