FIRST TOPIC:
REVIEW QUESTIONS
QUESTION ONE
a) With reference to the Income Tax Act, Cap 332 R.E. 2008, Explain the significance of classifying a person as resident in the resident in the United Republic for income tax purposes
b) With examples, discuss the concept of tax incidence and impact with respect to direct tax and indirect taxes?
QUESTION TWO
a) Analyze the nature and the objectives of taxation
b) Explain the incidence of taxation
QUESTION THREE
The following claims were raised during the year 2013 by a representative of a small and inexperienced tax firm who was seeking advice from a renowned tax consultancy firm.
“I have for very long time now noted with much concern the manner in which the income tax officials are deliberately harassing us. Their methods of assessment are based on fear and coercion!. The ignorance of these officials on the various legal provisions, as well as on the other current economic developments which have great influence toward interpretation of the status accounts for much of what is happening I have the following cases in point:
i. Firstly, in order to collect more revenue, and thus justify their targets, the officials always and arbitrarily tend to classify corporations as non residents. The ABC Co, Ltd is registered under Companies Act of Tanzania, though its head office is in Kampala, Uganda. Though the law provides that once a corporation has been registered under the Companies Act or any other government law in Tanzania it is a resident corporation, the tax officials argue that because the management and control of the corporation was exercised in the head office in Kampala, then it is not a resident corporation.
ii. Secondly, a football coach from Qatar came in the country in February last year and signed a contract with Uzunguni, a football player, offering Uzunguni to play for a team in Qatar for a period of 5 years, at a monthly salary equivalent to TZS 2 million. The player agreed and both left to Qatar after the contract was enforced. To my surprise my client Uzunguni while on his annual two weeks leave, after completing one year of the contract period in Qatar was served with a tax demand notice requiring him to pay income tax in respect of the salary earned in Qatar.
iii. Thirdly, Mr. Plata is a Tanzanian working in France, where he lives with his whole family. He has not been in the united Republic of Tanzania (URT) for the past ten years. However, during 2011, he came in the country (URT) on a business trip and stayed for 4 weeks. I therefore advised him to claim for the income tax personal relief (which are basically granted to resident individuals only) for the year of income 2011. My basis of advice was that being a citizen of Tanzania and keeping in mind that he was present in the URT during the part of 2011, he was therefore a resident individual for the year of income and he was therefore entitled for the relief. The assessor, however, refused to grant the relief on ground that Mr. Plata was not a resident individual for 2011, since he had no permanent home in the URT.
iv. Lastly, I am missing the rationale for the treatment of lunch subsidies and coupons provided to employees of some companies. I have similar concerns on medical services. In both cases, taxation treatment depends on whether such benefit was offered on discriminatory or non discriminatory basis. The criterion is that the benefits are taxable if were offered on discriminatory basis. In my opinion these benefits fall under the broad area of employees’ motivation. The intent of motivating employees is to increase productivity. As such, taxing such benefits surely goes contrary to the country’s policies including health policy. It is confusing and disappointing to see the tax policy is working against other state policies”
Advise on the four issues raised above.
SECOND TOPIC:
REVIEW QUESTIONS
QUESTION ONE
a) Explain the meaning of “an employment”
b) Mr. Kizu has just been appointed as a financial consultant of MTUMWEMA Ltd for a contract of one year and he will be stationed at MTUMWEMA Ltd’s premises for the whole period of the contract. His terms of the contract include a weekly remuneration bases on hours that Mr. Kizu will be working at MTUMWEMA Ltd.
Required:
Distinguish between “a contract of service” and “contract for service” using the information above.
QUESTION TWO
Rabia & Assey Ltd employed Ms. Malaika Mukoba as the company human resource officer with effect from 1st September 2009. By the time the company submitted a statement of employment income for year 2010, the following information was revealed to her as her annual emoluments:
· Basic annual salary TZS 6,000,000/=
· Transport allowance TZS 2,500,000/=
· Lunch allowance TZS 1,500,000/=
· Medical allowance TZS 1,000,000/=
The employer housed her for free. The annual market rental value of that area was TZS 4,000,000/= and the expenditure claimed by the company per annum foe that premise was TZS 1,500,000/=. The contribution made by the employee was TZS 500,000/= as rent. Besides the emoluments stated above, the employee has the following benefits:
· A self driven car for private use, which is 3000cc, brand new. The company claims expenditure of car maintenance.
· Other benefits included electricity TZS 30,000/= and water TZS 25,000/= per month in her office.
Though her employment services were terminated on 31st December 2010, the company paid her TZS 30,000,000/= as termination benefits (Compensation for lost of employment). Other income she received in 2010 was TZS 300,000/= interest from MBY Bank, TZS 1,500,000/= - lease amount from MSK company for the building she leased to the company since 2009.
Required:
Calculate the total income for Ms. Malaika Mukoba for the year of income 2009.
QUESTION FIVE
Mr. Li Ching Chinese expert was employed by the Nuwe Mining Corporation (NMC) a private resident company on expatriate terms, to construct the Rungwe Coal Mine complex in Mbeya
He came to the United Republic of Tanzania on 1st February 2013 and started to work with the company on the following day
a) He was being paid duty allowance of Tshs. 300,000/= per month and a salary of Tshs. 600,000/= per month
b) For one month he was in China, he was working with the Government of China which had paid him equivalent to Tshs. 500,000/= per month.
c) The firm provided him a car (3000cc, of 2011) from the day he arrived in the United Republic. This was wholly used for employment.
d) For the first two months of his stay in the United Republic, he was accommodated in a hotel. The firm paid a total of Tshs. 1,500,000/= for full board.
After then, he was provided with a fully furnished house. The firm had installed the furniture in the house which belonged to the NPC limited which cost Tshs. 6,000,000/=. NMC was paying a monthly rent of Tshs. 800,000/= per month for the house to NPC and was deducting token rent of only Tshs 50,000/= per month from Mr Li Ching’s salary. Half of the house was used as an office, and the company was entitled to claim repair and maintenance expenditure.
e) According to the contract of employment, he had a right of going on leave once annually. However, due to his important role in the project, the firm decided to pay him on 30.5.2013, Tshs. 1,000,000/= in consideration of him foregoing his 2013 annual leave.
f) On several occasions he had, on behalf of the company, to tender some consultancy services to the State Mining Corporation. As thus the employer company paid him a token sum of Tshs. 500,000/= as appreciation for the services as he gave the firm a considerable amount of revenue, in the form of consultancy fees from the State Mining Corporation.
g) Water bills for the year totaled Tshs. 80,000/= and were fully met by the employer. The bills stood in the name of the employer. Electricity bills (which stood on the name of the employee) totaling Tshs. 50,000 were also met by the company.
h) A night watchman earning Tshs. 80,000/= was employed by the company for the house. However, he was only responsible for part of the house used for employment purpose. This watchman was also provided with a house used by the company
i) The company paid the following annual membership fees for him.
- Tshs. 60,000 as membership fee to the Lion Hotel swimming pool
- Tshs 100,000/= as membership fee to Mining Experts Club
- Tshs. 10,000/= to Officers mess
- Tshs. 200,000/= to the Safari Club
Though he was working in Mbeya, he used to come to DSM during the weekends. The firm was also paying for his trip to and from Mbeya in which Tshs. 2,300,000/= was used for those trips.
j) On the basis of his contract, the company provided him with free lunch which was worth Tshs. 10,000 each and two crates of beer for each month. He had taken only 30 lunches for 2013. A crate of beer was purchased at Tshs. 25,000/=
k) He was paid free interest loan of Tshs 20,000,000/= payable in 24 months on 1st May 2013. Assume statutory rate is 15% p.a.
l) On one of the trips to DSM he toured Chui textile Mill, where he was given complimentary of 6 pieces of ‘kitenge’ dressing materials each worth Tshs. 5,000/=.
m) At the end of each year he was paid a gratuity of Tshs. 1,500,000/=.
Required:
From the above information, compute Mr. Li Ching taxable income for 2013 year of income.
FOURTH TOPIC: INVESTMENT:
REVIEW QUESTIONS
Question one
Mrs. Zulfikar is a resident individual residing in Arusha. During the year of income 2005, she decided to sell her residential premise for Tshs. 64,000,000/=. This building was constructed for Tshs. 30,000,000/= in 2001 and remained vacant for the entire period. Before the sale of the building, she incurred a total of 8,000,000/= for painting and replacement of the roof. Moreover Jackson Law Chambers were hired to prepare the sale agreement for which she paid 3% of the selling price as legal charges. She also paid Tshs. 500,000/= to Duke selling agent who facilitated the sale of the building though the sale was also advertised eight times in one of the local news papers for Tshs. 400,000/=.
Apart from these transactions, Mrs Zulfikar also had small business for which during the year 2005 she earned a total of Tshs. 60,000,000/= as business income.
Required:
i. Compute the total Income of Mrs. Zulfikar for the year of income 2005.
Would your answer be different had it been that Mrs. Zulfikar is a non-resident person.
Question Two
Jane is a newly formed company carrying out fishing business. During the first year (2009) of operations it made the following transactions:
i. Received dividend from NANA Ltd a resident corporation amounting to TZS 6,000,000.
ii. Dividends amounting to TZS 3, 5000,000 were received from KWEMU Ltd, which is listed on the DSE, and owned 22% by TMBU 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 Au 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 800000 as rent
v. During the year the company received TZS 400,000 as rent from MR. James a Tanzanian, with respect of house occupied by him situated at Changanyikeni - Dar es Salaarit
vi. Also the company received royalty from Madengu Ltd amounting to TZS 400,000 out of lease of video tapes used for promotion.
vii. 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 sales, this land has been used for a agricultural land.
In addition to that transaction 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 years ending
2008.
Question Three
a) SETC (T) LTD is a non-resident corporation with the following sources of income ended December 31, 2010:
i. Sold shares of MAJIB Ltd, a non resident (Listed shares in the Dar es Salaam stock Exchange - DSE) whereby the company owns 25% of the controlling shares. these shares were bought at Tshs 21,400,000 and sold for Tshs 34,300,000
ii. . Received bank interest in relation to a fixed deposited with YXZ Bank Ltd of Tshs 10,300,000
iii. Received Tshs 10,000,000 for sale of a land situated at Dar es Salaam. This land was acquired in 2005 for Tshs 1,200,000. The corporation used for agricultural purposes from 20007 – 2008
iv. . Received divided of Tshs 7,000,000 from HK Ltd. This was a resident corporation where the company owned 28% of the company.
v. Paid dividends to WISE Ltd of Tshs 23,000,000. This is Non-resident Corporation owning 35% of the shares of the company.
vi. Received rent (in conducting business) of Tshs. 20,000,0000. This came from an investment building located at Igunga, Tabora. This building was constructed at Tshs 450,000,000. during a years, the company acquired furniture and fixtures for the building worth Tshs 23,000,000. Apart from that, the company incurred Tshs 3,000,000 to repair the building in order to increase its life span.
vii. Sold 10,000 shares of MAJURA Ltd, a resident corporation (unlisted in the DSE). These were acquired at Tshs 300 each and sold for Tshs 5000 each.
viii. Received dividends of Tshs 32,000,000 from ABC Ltd, a non resident corporation where SETC LTD owns 40% of the shares of this company.
ix. Sold a residential house of the company which has been occupied for three years for Tshs 25,000,000. The house was bought in Igunga for Tshs 7,000,000.
x. Dividends amounting to Tshs 5,000,000 were received from CHEMA Ltd , a non resident corporation which is listed in OSE and 20% of its shares is owned by KET Ltd, a resident company.
The following additional information is also provided (extracted from Paragraph 4 of first Schedule of the Income Tax Act, 2004).
Income Tax to be withheld from payments under Division II of Part VII shall be at the following rates
(a) Payment to which section 81 applies:
i. In the case of resident withholder_ at the rates prescribed in regulations; or
ii. In the case of a non_ resident withholdee_ l5percent;
(b) Payment to which section 82 applies
i. In the case of dividends
(aa) Of a corporation listed on the Dar es Salaam Stock Exchange — 5 percent; or
(bb) of other corporation — 10 percent
(ii). in the case of interest, rent or a commuted pension paid to a resident withholdeee or interest paid to a non resident withholdee — 10 percentage.
(iii) In the case of other payment - 15 percent;
(c) Payment of which section 83 applies:
i) In the case of service of fees referred to in section 83 (1) (a) - 5 percent:
ii) in the case of service fees refereed to n section 83 (1) (a) - 15 percent:and
iii) In the case of insurance premiums referred to in section 83 (1) (b) - 5 percent:
REQUIRED
With respect to SETC (T) Ltd, calculate the following for the year if income ended December 31, 2010
(i) Total income and chargeable income
(ii) Total tax liability and net tax liability
Question Four
Mr Kapinga is a resident employee in COVENANT financial consultants. His total gain from employment during the FY 2005 were Tshs 25,000,000
On 10 February 2005 he received Tshs 850,000 from his Savings account held with Akiba Commercial Bank.
He owns a residential house, which she rents to Germany Embassy whereby she received USD 3000 edery month at ER of Tshs 1275/USD as rent He owns another residential house situated at Kinondoni which she rented to Zambian Embassy and he receives a total rent of Tshs 380,000 per annum, I3othe Rent were paid on 28th February, 2005.
He owns 200 shares in TWIGA CEMENT listed on DSE on 1st March 2005 he received Tshs 1,655,000 as Dividend.
Due to unexpected tragedies Mr. Kapinga decided to take a life insurance policy with ALLIANCE insurance. On March 2005 his policy matured and receive Tshs 800,000
On 15 April 2005 he decided to sell his residential house, which he has been occupying for the past 5 years. The cost of construction this house was Tshs 50,000,000 and she sold to MR. Mkoko for Tshs 63,000,000.
In their office MR. Kapinga, contributed to unproved Pension Fund, and he has been a member since he joined COVENANT. During 2005, the fund decided to distribute the gains from the Fund, and Mr. Kapinga received Tshs 500,000
He also owns another private residential house in Dodoma, which was constructed in 1990. But he does not occupy this house he rented it to NMB where he receives rent of Shs 1,000,000 per years. He constructed the house for Tshs 30,000,000 and he paid Tshs 250,000 to CHIKO advocates as transfer fee of the land during purchase. Later on July 2005
In his Farmland situated in Madale Dar es Salaam, there were discovered some RUBY stones on 1st September 2005 Mbezi investment entered into agreement with him to extract the stones and paid him Tshs 8,500000 as a payment for the right to extract the ruby stones.
He has interest in KAT a resident trust, On 15 October 2005 the received Tshs 900,000 as distribution from the trust.
During the year he sold 10 hectors land which was at MBEZI BEACH and received Tshs 25,000,000. He purchased this land for Tshs 15,000,000 in 2000. Mzee Abdaflah who has been using this land for agricultural purposes for two years before the decided to sefl it to Mr. Kapinga.
During the year MR. Kapinga, divorced his wife, by Court order he was instructed to transfer some of investments to his wire. He decided to transfer the followings.
(i) The 1000 shares in TOL, these shares had Par Value of Tshs 200 per share at the time of acquisition. They incurred Tshs 200,000 as brokerage costs. The same shares now have a market value of Tshs 150 per share.
Required
By applying relevant provisions of ITA 2004, compute for MR. Kapinga foor FY
2005
1. Income from investment
2. Total income FY 2005
Note: Assume during the year Employer contributed on behalf of MR. Kapinga Tshs 1,800,000 to NSSF which was not included in computation of employment income and himself contributed Tshs 900,000 for the whole year of 2005.
Question Five
PP limited runs a tourist resort Mikumi Tanzania. It is a resident corporation by virtue of S. 66 of ITA 2004.
1) DIVIDENDES
- Received dividend, from TTT limited, a resident corporation, amounting to Tshs 5,500,000.
- Where PPP Limited owns 45% of the shares of TT Limited
- Received Dividend amounting to Tshs 3,000,000 from Tanzania breweries a company listed on the Dar es Salaam stock exchange.
- Dividends amounting to Tshs 2,500,000 received from HP Williamson
Limited, which is listed on DSE, and is owned 20% by TIKA Limited a non resident company.
- Dividends amounting to Tshs 1,550,000 received from Chuwa Company limited.
- Received divided from DONKOR limited a non resident entity, amounting to Tshs 2, 300, 000 where PPP Ltd owns 40% shares in DONKOR LTD.
RENT
PPP limited owns CHUWA TOWER an 8 - story building, which situated along
Zanaki Street. The whole building is rented to various tenants as offices, salon
and shop outlets. PPP limited received in Total Tshs 10,000,000 as rent from all the tenants in Chuwa tower.
PPP Limited has its office along Au Hassani Mwinyi Road, the office was underutilized, PPP decided to rent from part of its office to Juma Bakari a shop businessman, who used it as a shop Mr. Juma pays Tshs 800,000 to PPP limited as rent.
During the year the company received Tshs 300,000 as rent from MR. Chagula a Tanzanian with respect of house occupied by Mr. Chagula situated at Mabibo - Dar es salaam.
PPP Limited received a royalty from Mazimbu Limited amounting to Tshs 4, 5000,000 resulting from, lease OF NATIONAL PARKS videotapes, which MAZIMBU were using for business promotions. on 31st may 200x, PPP Ltd received another Royalty amounting to Tshs 1,000,000 from Jessy limited who bought the right to extract JEMSTONES form one of PP”s mining plots.
During the Yea PPP LTD sold 5 hectors lands, which was at Mikocheni and received Tshs 20,000.000. This land was purchased by PPP Limited for Tshs 3,000,000 in 1980. 3 Years prior to its sale this land has been used as agricuftural land.
PPP Ltd had 8 hectors land at Bunju, which was purchased for Tshs 1,000,000 in 1995. on 2nd February 200x, PPP Ltd decided to sell the land for Tshs 5,4000,000. Through the period the land has been used for agriculture. The market value of the land at the time of sale was Tshs 5M.
Both PP Limited JEKA Limited were planning to acquired some shares in a newly formed company CHEKA Limited. Due to scarcity in the number of shares available in CHEKA Ltd, JEKA decided to pay PPP Ltd Tshs 1,050,000 so as to restrict him from buying the shares in CHEKA LTD.
On 1st June 200x PPP Limited received Tshs 1,200,000 as interest from Tanzania Postal Bank with respect to deposits made in TPB.
On 6th June 200x PPP Ltd received Tshs 2,800,000 as a distribution form TOTO resident trust.
During the year PPP Ltd paid life insurance worth Tshs 800,000 for two of his prominent employees.
One of the building owned by PPP situated in Mwanza which has been rented as offices was caught in fire, and it was totally destroyed by fire. This building was contracted for Tshs 400,000,000 in 2002, the from part of the building was altered in order to make the building much more modern for Tshs 50,000,000. NIKO Advocates were paid Tshs 10,000,000 as legal fees for preparation of all documents related to ownership of the land. since the building was completely destroyed.
National insurance corporation, the insurer of PPP Ltd decided to take the destroyer building and replaced it with building costing Tshs 465,000,000.
During the Year PPP Limited decided to transfer for free 1000 shares owned in TCC to his sister company DDD limited. These shares were acquired at DSE at Tshs 500 per share. At the time of acquisition of these shares Tshs 150000 to DSE broker. The market of each share at the time of transfer was Tshs 510.
Required: By applying relevant provisions of ITA 2004, compute
(a) Investment income and
(b) Total income of PPP Limited for FY 200x
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