Tax Laws in Tanzania: Taxation Questions & Answers
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Transcript of Tax Laws in Tanzania: Taxation Questions & Answers
November, 2011
Publication TLT-01
Questions
&
Answers:
Tax Laws
in
Tanzania.
The use of this publication is subject
to the same terms and conditions of
Tax Laws in Tanzania site. Click here
for the terms and conditions.
Contents
Question 01: Employment Income ................................. 2
Answer 01: ............................................................................... 2
Question 02: Employment Income ................................. 2
Answer 02: ............................................................................... 2
Question 03: Employment Income ................................. 3
Answer 03: ............................................................................... 3
Question 04: Employment Income ................................. 3
Answer 04: ............................................................................... 3
Question 05: Employment Income ................................. 4
Answer 05: ............................................................................... 4
Question 06: Investment Income .................................... 4
Answer 06: ............................................................................... 5
Question 07: Investment Income .................................... 5
Answer 07: ............................................................................... 5
Question 08: Depreciation Allowance ........................... 5
Answer 08: ............................................................................... 5
Question 09: Depreciation Allowance ........................... 6
Answer 09: ............................................................................... 6
Question 10: Business Income - Partnership ............. 6
Answer 10: ............................................................................... 7
Question 11: Investment Income .................................... 7
Answer 11: ............................................................................... 7
Question 12: General ............................................................ 7
Answer 12: ............................................................................... 7
Question 13: Business Income - Corporation ............. 7
Answer 13: ............................................................................... 8
Question 14: General ............................................................ 8
Answer 14: ............................................................................... 8
Question 15: Business Income - Partnership ............. 8
Answer 15: ............................................................................... 8
Question 16: Double Taxation .......................................... 8
Answer 16: ............................................................................... 9
Question 17: Permanent Establishment ....................... 9
Answer 17: ............................................................................... 9
Question 18: Double Taxation .......................................... 9
Answer 18: ............................................................................... 9
Question 19: Non–Compliance ......................................... 9
Answer 19: ............................................................................... 9
Question 20: Non–Compliance ......................................... 9
Answer 20: ............................................................................... 9
Question 21: Business Income – Sea Transport ........ 9
Answer 21: ............................................................................... 9
Question 22: Special Industries - Charities .............. 10
Answer 22: ............................................................................ 10
Question 23: Remission & Refund – Income Tax ... 10
Answer 23: ............................................................................ 10
Question 24: Business Income - Corporation .......... 10
Answer 24: ............................................................................ 10
Question 25: Foreign Controlled Corporation ........ 11
Answer 25: ............................................................................ 11
©Tax Laws in Tanzania Publication Number :: TLT-01
Kessy Juma :: http://www.taxation-tz.com Page 2
Question 1.
Peter is employed by The Consultancy Ltd as a fashion designer. The
following information is available for the tax year 2009.
(1) During the tax year 2009 Peter was paid a gross annual salary of
Tshs. 12,000,000/= by The Consultancy Ltd.
(2) In addition to his salary, Peter received two bonus payments from
The Consultancy Ltd during the tax year 2009. The first bonus of
Tshs. 444,300 was paid on 30 April, 2009 and was in respect of the
year ended 31 December, 2008. Peter became entitled to this first
bonus on 10 April, 2009. The second bonus of Tshs 333,600 was paid
on 31 March 2009 and was in respect of the year ended 31
December, 2009. Peter became entitled to this second bonus on 25
March, 2009.
(3) Throughout the tax year 2009 The Consultancy Ltd provided Peter
with a diesel powered motor car which has a list price of Tshs
22,500,000/=. The motor car cost The Consultancy Ltd Tshs
21,200,000/=, and it has 1500cc and was first registered in Tanzania
on 2 March, 2007. The Consultancy also provided Peter with fuel for
private journeys and does not claim capital allowance for this
vehicle.
(4) The Consultancy Ltd has provided Peter with living accommodation
since 1 January, 2007. The company had purchased the property in
2006 for Tshs 16,000,000, and it was valued at Tshs 18,000,000/= on
1 January, 2008. Improvements costing Tshs 2,013,000/= were made
to the property during June 2009. The annual value of the rental in
that area is Tshs 3,600,000/=, and the company claim Tshs
1,000,000/= as capital and maintenance toward the house.
(5) Throughout the tax year 2009 The Consultancy Ltd provided Peter
with two mobile telephones. The telephones had each cost Tshs
250,000/= when purchased by the company in January 2009 and
20% of telephone uses were private. It is the company’s policy to
provide mobile telephones to all employees.
(6) On 5 January 2009 The Consultancy Ltd paid a health club
membership fee of Tshs 510,000/= for the benefit of Peter and all
employees of the company were covered by the same programme.
(7) During February 2009 Peter spent five nights overseas on company
business. The Consultancy Ltd paid Peter a daily allowance/per diem
of Tshs 100,000/= to cover the cost of personal expenses such as
telephone calls to his family.
(8) The company contributes 15% of basic salary to PPF on behalf of
Peter and does not include in taxable employment income.
(9) Peter received a loan of Tshs 1,000,000/= during the year 2009 and
is payable over three years. The company charges 2% pa on gross
loan while the current statutory rate was 17% pa.
Required:
(a) Calculate the income tax payable from employment income by Peter
for the tax year 2009.
(b) Calculate the Employment income of Peter for the year 2009.
Suggested Solution
(b) Computation: Employment Income
Tax Payer: Peter
Year of Income: 2009
Residential Status: Resident Individual
Annual Salary 12,000,000 Bonus (444,300 + 333,600) 777,900 Car Benefit (No expenditure claimed) Nil Mobile phones (20% x 250,000 x 2) 100,000 Health club membership fee (Non-discriminatory) Nil Allowance for personal expenses on business trip Nil PPF Contribution (Not included in income) Nil Loan Interest Benefit (LIB) – Note 1 150,000 Total Income before Housing Benefit 13,027,900 Housing Benefit (HB) – Note 2 1,954,185 Taxable Employment Income 14,982,085
Note 1:
If (i) Loan amount is less than or equal to 3months basic salary and
(ii) Loan period is less than 12months,
then the Loan Interest Benefit (LIB) is exempt, otherwise taxable.
Here LIB = (Statutory rate - Loan interest rate) x Loan amount.
Statutory rate = BOT’s discount rate at the start of the year.
Since the loan given to Peter doesn’t satisfy the condition(s), then the LIB
thereon is taxable and it is computed as follows.
LIB = (17% - 2%) x 1,000,000 = 150,000
Note 2:
If an employer provides residential housing to the employee, and the
employer claims deduction in relation to capital and maintenance of the
house, then the House Benefit is taxable and is calculated as:
The lesser of:
(i) Annual market rental value of the house and
(ii) The greater of:
(a) 15% of employee’s total income for the year of income excluding
House Benefit
(b) Expenditure claimed as deduction by the employer.
Reduced by the employee’s rental contribution.
So, for the case of Peter
Loan Benefit is the lesser of:
(i) 3,600,000; and
(ii) the greater of:
(a) 15% x 13,027,900 = 1,954,185
(b) 1,000,000
Here the greater of 1,954,185 and 1,000,000 is 1,954,185; and the lesser
of 3,600,000 and 1,954,185 is 1,954, 185. Hence the Housing Benefit is
1,954,185.
Note that, we only consider the chargeable income in computing total
income for the purpose of calculating 15% of total income. This is the
ruling of section 5(1) which specifies that total income is the sum of
chargeable income. In this case if an amount such as the transport
allowance to father, mother and 4 children staying more than 20
miles from the employment base is not chargeable income and hence
excluded.
(a) Tax payable from Employment Income of Peter is calculates as
follows.
Peter’s monthly income from the employment
= 1,248,507 (i.e. )
With this income peter falls under the last bracket of the Individual
Income Tax Brackets (i.e. the bracket with total income
exceeding 720,000 per month)
The Monthly tax payable = A + r (B – C)
= 112,500 + 30% x (1,248,507 – 720,000)
= 271,052
And hence the annual tax payable = 271,052 x 12 = 3,252,625
Question 2. Mr. Hamnazo is a resident employee of Tatua Company Ltd from 1st January 2004. The following information relates to his affairs: (i) His monthly receipts include basic salary, transport, lunch and
medical allowances to the tune of TAS 500,000, TAS 425,000, TAS 175,000 and TAS 50,000 respectively.
(ii) Transport allowance of TAS 425,000 for nine people totaled TAS 3,825,000 has been given to Mr. Hamnazo including each child and his spouse because he lives more than 45 km from the place of employment.
(iii) Self driven car of above 3000 cc was given to him for private use. Expenditure on the car is claimed against taxable income of Tatua Company Ltd.
(iv) Mr. Hamnazo was given an interest free loan of TAS 4,000,000 payable in two calendar years on monthly installments (assume statutory interest rate of 15% p.a).
(v) Other per month benefits enjoyed by Mr. Hamnazo includes electricity and water amounted to TAS 300,000 and TAS 240,000 respectively.
Required: Calculate the monthly taxable employment income for Mr. Hamnazo.
Suggested Solution
Computation: Monthly Employment Income of Mr. Hamnazo for 2004
Residential Status: Resident Individual
Monthly Salary 500,000 Transport allowance for 3 people 1,275,000 Lunch allowance 175,000 Medical allowance 50,000 Car benefit 125,000 Loan Interest Benefit (Note 1) 50,000 Water & Electricity 540,000 Taxable Employment Income 2,715,000
©Tax Laws in Tanzania Publication Number :: TLT-01
Kessy Juma :: http://www.taxation-tz.com Page 3
Note 1:
If (i) Loan amount is less than or equal to 3months basic salary and
(ii) Loan period is less than 12months,
then the Loan Interest Benefit (LIB) is exempt, otherwise taxable.
Here LIB = (Statutory rate - Loan interest rate) x Loan amount.
Statutory rate = BOT’s discount rate at the start of the year.
Since the loan given to Hamnazo doesn’t satisfy these two conditions, then
the LIB thereon is taxable and it is computed as follows.
LIB = (15% - 0%) x 4,000,000
= 600,000 per year = 50,000 per Month
Question 3.
Ms Glory was employed for the first time by Fruto International Ltd, a
private resident company since 1st January, 2005. As a company’s
Marketing Manager, Ms Glory was given a range of responsibilities. She
has been resident of the United Republic of Tanzania solely in the years
2004 and 2005. Her duties are well balanced by a good package of
remuneration which is made up of the following:
(i) Basic salary of Tshs. 800,000 per month and medical service
insurance of Tshs. 30,000 per month as per the company’s policy to
its employees.
(ii) Mobility allowances for use when on duty trips within her duty
station of Tshs. 100,000 per month coupled with life insurance of
Tshs. 50,000 each month paid directly by the company to the
Insurance Company. It is estimated that Ms Glory is spending only
50% of the mobility allowance for the performance of her official
duties.
(iii) It is the policy of the company to pay all of its employees lunch
allowances of Tshs. 2,000 each per day for 22 days each month.
(iv) Travelling allowances for home-office-home trips of Tshs. 100,000
per month.
(v) The company pays school fees and uniforms for its employees as its
contribution as per the National Education Policy. Ms Glory received
Tshs. 500,000 which the employer ensured that the sum is spent
according to agreed terms.
(vi) A fully furnished residential quarter where the value of furniture
itself amount to Tshs. 2,000,000. The company normally recognizes
Tshs. 120,000 per month as expense for the provision of the house
while the market rent of a house of the same status is Tshs. 150,000
per month. The cost of the house to the company was Tshs. 10
million.
(vii) During 2005, Ms Glory travelled to her home country, Uganda, for an
annual leave where she provided consultancy for one month for the
following remuneration: Consultancy fees amounting to Tshs. 40,000
per day for 20 days; Upkeep allowance of Tshs. 200,000 for the
period of consultancy and free accommodation with market value of
Tshs. 150,000.
(viii) During her trip to Uganda, the company paid Tshs. 450,000 for her
return air ticket, since the location of the company is Dar es Salaam.
(ix) Ms Glory acquired a car at a cost of Tshs. 6,000,000 which was fully
used in the employment duties.
(x) Ms Glory also received interest from her Banker on fixed deposit
account, Tshs. 200,000.
(xi) Retirement contributions are made to the Social Security Fund where
the employer contributes 10% and the employee 10% of the gross
monthly salary.
REQUIRED
On the basis of the above information, compute Ms Glory’s taxable income
for the year of income 2005 (assume today is 31st December 2005).
Suggested Solution
Computation: Taxable Income of Ms Glory for 2005
Residential Status: Resident Individual (for two years)
Annual Basic Salary (800,000 x 12) 9,600,000 Medical service insurance Nil Mobility allowance (100,000 x 50% x 12) 600,000 Life insurance (50,000 x 12) 600,000 Lunch allowance (2,000 x 22 days x 12) 528,000 Travelling allowance (100,000 x 12) 1,200,000 School fees & Uniforms 500,000 13,028,000 Consultancy fee (Uganda ) - See Note 1 Nil Upkeep allowance (Uganda) – See Note 1 Nil
Free accommodation (Uganda) – See Note 1 Nil Trip to Uganda (more than 20 miles) Nil Interest from NBC (non-final) 200,000 Retirement Contributions (Note 2) – Add employer’s 1,302,800 Retirement Contributions (Note 2) – Less allowable (2,400,000) 12,130,800 Housing Benefit (Note 3) 1,800,000 Taxable amount for 2005 13,930,800
Note 1:
The chargeable income of a resident individual who at the end of a year of
income has been resident in the United Republic for two years or less in
total during the whole of the individual’s life shall be determined the same
way as the income of a non-resident person, whereby the person's income
from the employment, business or investment for the year of income that
has a source in the United Republic is included. Income derived from other
countries is excluded [Section 6(2)]
Note 2:
The lesser of the total contribution made or statutory contribution (i.e.
2,400,00 p.a.) can be deducted from total income.
For the purpose of deducting employer’s contribution, the contribution
must have been included in employee’s income.
So we first include employer’s contribution, then we less the lesser of total
contribution and statutory contribution.
Total gross cash emoluments 13,028,000 Employer’s contribution (10%) 1,302,800 Employee’s contribution (10%) 1,302,800 Total contribution 2,605,600
Note 3:
If an employer provides residential housing to the employee, and the
employer claims deduction in relation to capital and maintenance of the
house, then the House Benefit is taxable and is calculated as:
The lesser of:
(i) 1,800,000 (i.e. 150,000 x 12); and
(ii) the greater of:
(a) 15% x 12,130,800 = 1,819,620
(b) 1,440,000 (i.e. 120,000 x 12)
. . Housing Benefit = 1,800,000.
Question 4.
(a) Mr. Juakali is a resident employee who is employed by the ABC Co.
Ltd. effective from 1st January, 2004. The facts relating to his
employment are as follows:
(i) Monthly receipts:
Tshs. Basic Salary 1,000,000/= Transport Allowance 850,000/= Lunch Allowance 350,000/= Medical Allowance 100,000/=
(ii) Mr. Juakali was given residential house free of charge but the
Company claimed expenditure of Tshs. 150,000/=. The rental
market value of the house was Tshs. 700,000/= of which Mr. Juakali
contributed Tshs. 100,000/= as rent.
(iii) Mr. Juakali was given a new self driven car of above 3000cc that was
used for private use. This car claims expenditure on the maintenance
and ownership against taxable income.
(iv) Mr. Juakali was given an interest free loan of Tshs. 4,000,000/=
payable in 24 monthly installments (assume the statutory interest
rate in relation to the calendar year was 12% p.a.)
(v) Other benefits which were enjoyed by Mr. Juakali included:
Electricity Tshs. 150,000 p.m Water Tshs. 120,000 p.m
Additional information was given as follows:
(i) Transport allowance of Tshs. 850,000/= @ 7 = Tshs. 5,950,000 has
been given to Mr. Juakali including each child and his spouse because
he is domiciled more than 45 km from the place of employment.
(ii) Mr. Juakali was given Tshs. 400,000 cash to be paid as tuition fee to
Makerere University by the IFDA Scholarship where he is enrolled
for a Master’s degree course.
REQUIRED:
(i) Calculate the Housing Benefit and Car Benefit enjoyed by Mr. Juakali
per month.
(ii) Calculate the monthly taxable income for Mr. Juakali.
©Tax Laws in Tanzania Publication Number :: TLT-01
Kessy Juma :: http://www.taxation-tz.com Page 4
(b) Briefly explain the meaning of “employment” in line with the Income
Tax Act 2004.
Suggested Solution
(a)
(i) Computation of Car Benefit [CB]:
With 3000cc vehicle, monthly CB = 1,500,000/12 = 125,000
Computation of Housing Benefit [HB]:
First step: Compute total income of Mr. Juakali without the HB.
Monthly Salary 1,000,000 Transport allowance for 1 person 850,000 Lunch allowance 350,000 Medical allowance 100,000 Water & Electricity 270,000 Car benefit 125,000 Loan Interest Benefit (Note 1) 40,000 Total Income before HB 2,735,000
Housing Benefit:
Lesser of
(i) Market Value = 700,000
(ii) Greater of
(a) 15%*2,735,000=410,250 or
(b) 150,000
. . Housing Benefit = 410,250
(ii) Computation of Monthly Taxable Income:
Total Income before HB 2,735,000 Housing Benefit 410,250 Monthly Taxable Income 3,145,250
(b) By virtue of section 3 of the Income Tax Act 2004, employment
means:
(a) A position of an individual in an employment of another person,
(b) A position of an individual as a manager of an entity other than
as a partner in a partnership,
(c) A position of an individual entitling the individual to a periodic
remuneration in respect of services performed, or
(d) A public office held by an individual and includes a past, present
and prospective employment.
Question 5.
From the given information calculate the total taxable income of Mr.
Mambo for the year of Income 200X as stipulated in the Income Tax Act,
2004
(i) Mr. Mambo, resident employee was employed by ZMK Ltd. since 1st
January, 200X as an accountant. He is provided with a house along
Mbezi Beach area whose rental market value was Tshs. 200,000 per
month. The Company was claiming rental expenditure to the
Commissioner of Income Tax to the tune of Tshs. 150,000 per month.
(ii) During the year Mr. Mambo was provided with a brand new private
car (3000cc). The Company was claiming expenditure for the
maintenance of the car. The car use was 1/3 official use, and 2/3
private use.
(iii) During the year, the Company advanced Mr. Mambo Tshs. 3,000,000
as a loan payable in 24 equal installments and free of interest
(Assume statutory rate of interest is 12% p.a. charged on total loan).
(iv) The company contributed 15% of Mr. Mambo’s basic salary every
month to NSSF (Approved) at the same time the employee was
contributing 5% of his basic salary to NSSF.
(v) The employer also paid for Mr. Mambo scholarship fees of Tshs.
1,000,000 which was for full time course ending August 200X.
(vi) Mr. Mambo is also holding a part-time marketing consultancy to a
private firm belonging to his mother in law, where he is being paid a
monthly salary of Tshs 100,000.
(vii) The term of his service agreement with the Company provided for
payment to him, so as not to work for any competitor after his
retirement. In return for this covenant, the company paid Mr.
Mambo Tshs. 1,000,000 in December 200X.
(viii) Mr. Mambo is holding Saving Account with CRDB Bank. On 15th July,
200X, Mr. Mambo received Tshs 685,000 as interest from his savings
account.
(ix) His monthly salary was fixed at Tshs 600,000.
(x) The employer also met the following bills during the year.
Electricity Tshs 350,000
Gas Tshs 210,000
Water Tshs 121,950
All these bills were paid directly to the utility Companies.
Suggested Solution
Computation: Total Taxable Income of Mr. Mambo for 200x
Residential Status: Resident Individual
Basic salary (600,000 x 12) 7,200,000 Other Benefits (Electricity, Gas, & Water) 681,950 Salary from consultancy work (100,000 x 12) – Note 1 1,200,000 Amount received for accepting restriction 1,000,000 Scholarship fees Nil Interest from CRDB (Final) Nil Loan Interest Benefit (Note 2) 360,000 Car Benefit (Note 3) 1,000,000 NSSF (Employer) – Note 4 Nil NSSF (Employee) – Note 4 360,000 11,801,950 Housing Benefit (Note 5) 1,800,000 Total Taxable Income 13,601,950
Note 1:
This salary is from secondary employment and the rules regarding
secondary employments is:
All secondary employers must withhold tax at the maximum individual
rate, which is 30%. However, if employee’s total income is less than the
top band threshold (Tshs 8,640,000 per annum), the employee may apply
to TRA Income Tax Department to have a lower rate applied to the
secondary employments.
Note 2:
Loan Interest Benefit = (12% - 0%) x 3,000,000 = 360,000
Note 3:
With 3,000cc, car benefit = 1,500,000 : : 2/3 private = 1,000,000 taxable
Note 4:
NSSF Contribution:
Employer (15%) 1,080,000
Employee (5%) 360,000
Total 1,440,000
Since it is less than the statutory amount of 2,400,00 all employees
contribution of 360,000 is deductible.
Note 5:
(i) Market rental = 2,400,000
(ii) 15% of total income before HB = 1,770,292.5
(iii) Deduction claimed = 1,800,000
(iv) Higher of (ii) and (iii) = 1,800,000
(v) Lesser of (i) and (iv) = 1,800,000
HB = 1,800,000
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 non-
resident 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.
(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 sale, this land has been
used for as agricultural land.
In addition to those transactions it earned business profit of TZS 100
million.
REQUIRED:
©Tax Laws in Tanzania Publication Number :: TLT-01
Kessy Juma :: http://www.taxation-tz.com Page 5
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) –
AADU’s Investment Income (Nil) – Final Withholding – S. 86 (1) (a)
SIDUSA’s withholding tax (Nil) – Exempted – S. 54 (2)
(ii) Dividend from KWENU Ltd (3,500,000) –
AADU’s Investment Income (Nil) – Final Withholding – S. 86 (1) (a)
KWENU’s withholding tax (5% x 3,500,000) – 1st Schd para 4 (b) (i)
(iii) Dividend from CHUCHUMA Ltd (1,550,000)
AADU’s Investment Income (Nil) – Final Withholding – S. 86 (1) (a)
KWENU’s withholding tax (10% x 1,550,000)– 1st Schd para 4 (b) (i)
(iv) Rent from Bakari (800,000)
AADU’s Investment Income (800,000) – S. 9 (a)
J. Bakari’s withholding tax (10% x 800,000) – S. 82(1) & (2)(a)
Tax credit to AADU (10% x 800,000) – S. 87
(v) Rent from Mr. James(400,000)
AADU’s Investment Income (400,000) – S. 9(a)
Mr. James‘s withholding tax – Not a withholding payment
(vi) Royalty from MADENGU Ltd (400,000)
AADU’s Investment Income (400,000) – S. 9(a)
MADENGU’s withholding tax (15% x 400,000) – 1st Schd para 4 (b)
Tax credit to AADU (15% x 400,000) – S. 87
(vii) Gain from sale of land at KUNDUCHI (300,000,000)
AADU’s Investment Income (300mil – 2,000 = 299,998,000)
AADU shall pay 10% x 299,998,000 as a single instalment on
disposal as required by S. 90(1)(a)
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
Question 7.
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.
(3) 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.
(4) 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
payable annually in advance.
(5) 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.
(6) 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.
(7) 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
Question 8.
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 1st 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 2nd 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 31st 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.)
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RATE – A 37.5% 25% 12.5%
TWDV 1st Jan 2005 2,550,000 6,000,000 2,583,700
Additions: Air craft 50,000,000
Ship 60,000,000
Boiler (initial allowance) -
2,550,000 116,000,000 2,583,700
Incomings: P & M (3,000,000)
Ship (stolen) (20,000,000)
Office furniture (1,200,000)
DEP. BASE – B 2,550,000 93,000,000 1,383,700
DEPRECI. ALLOWANCES
Initial allowance:
Boiler (price + instal)
50% * (600 + 300) 450,000
Annual allowance: A * B 956,250 23,250,000 172,963
TOTAL ALLOWANCES 956,250 23,700,000 172,963
TWDV 31st Dec 2005 1,593,750 70,200,000* 1,210,738
*(93,000,000/= + 900,000/=) less 23,700,000/= or (93,000,000 –
23,250,000) + 450,000
Question 9.
ABC Co. Ltd. commenced a business of assembling computer hardware on
1st May 2005. The company acquired the following assets from XYZ, which
was winding up its business in the URTon 30th April 2005:
a) A house, which was used by the XYZ’s director, for Tshs. 15,000,000.
This was converted by ABC Co. Ltd. into a factory building after
incurring additional alterations cost of Tshs. 4,500,000.
b) Factory building was acquired for Tshs. 24 million. One fifth of this
building houses the head office. The office was air-conditioned with air
conditioners worth Tshs. 2 million.
c) Factory plant and machinery worth Tshs. 180 million. The tax written
down value (TWDV) of the machinery was Tshs. 60 million in the
vendor’s books.
d) Two five-ton Lorries worth Tshs. 40 million in total. Their total TWDV
was Tshs. 32 million and their total book value (BV) was Tshs. 28
million.
e) A saloon car costing Tshs. 23 million. This car had a nil BV and TWDV
in the books of the vending company. ABC Co. Ltd. used the car purely
for business purposes.
f) Processors, Data key boards, Printers, which were semi – assembled,
were also acquired for Tshs. 20 mill.
g) Office furniture was purchased for Tshs. 4.2 million. This asset had a
TWDV of Tshs. 1,800,000/= and accumulated depreciation of Tshs.
400,000.
h) Office stationery and some operational guides were also purchased for
Tshs. 1,900,000/=
After the commencement of the business, the following transactions
took place:
i) One of the lorries was gutted by fire. Tshs. 8 million as insurance
compensation was received from National Insurance Corporation for
the loss.
ii) On 1st November 2005 an eight-ton trailer was purchase for Tshs. 38
million.
iii) BBA sold to ABC Co. Ltd. a godown building constructed for Tshs. 15
million at Tshs. 175 million. It was used for storage of ABC Co. Ltd.
finished products from 1st January 2006.
iv) The remaining lorry was exchanged for a new one on 1st March 2006.
ABC Ltd. had to pay an additional Tshs. 10 million for the new lorry,
the total cost of which was Tshs. 24 million.
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
Computation: Depreciation Allowances
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
Trailer 38,000
79,000 38,000 6,200 218,500
Incomings: one lorry-fire (8,000)
Exchanged
lorry (14,000)
DEP. BASE – B 57,000 38,000 6,200 218,500
DEPRE. ALLOWANNCES
Initial allowance:
P&M (50% * 180,000) 90,000
Annual allowance: A * B 21,375 9,500 775 10,925
TOTAL ALLOWANCES 21375 99,500 775 10,925
TWDV 31st Dec. 2005 35,625 118,500* 5,425 207,575
* (38,000/= + 180,000/=) less 99,500/=
Question 10.
Bush, Bushek and Michapo are partners in one enterprise dealing in
transport business. Their business income statement for the year 2004,
has the following results:
Revenue 208,000,000
Other income 400,000
Total Income 208,400,000
Less: Operating Expenses
Depreciation allowance 10,800,000
Fuel and Oils 90,000,000
Spares, repairs & maintenance 14,000,000
Licenses 300,000
Interest 5,600,000
Salaries and wages 26,000,000
Stationery 800,000
Tyres and tubes 55,500,000
Miscellaneous expenses 8,000,000 211,000,000
Net loss for the year 2,600,000
Additional information is given as follows:
(i) The partners equally spent 10% of fuel and oils used for office
vehicles for private purposes.
(ii) Analysis of salaries and wages:
=> Drivers shs. 7,000,000
=> Office Attendant shs. 3,000,000
=> Bush shs. 8,000,000
=> Bushek shs. 4,000,000
=> Michapo shs. 4,000,000
(iii) Analysis of miscellaneous expenses:
=> Office cleaning shs. 350,000
=> Weigh bridge fines shs. 3,500,000
=> Total tax paid by partners shs. 3,300,000
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=> Office electricity shs. 250,000
=> Tip to Police to allow speeding car shs. 600,000
(iv) The Partners share profits/losses equally
(v) Other Income:
This represents interest on drawings paid by Michapo
(vi) Interest analysis:
Interest on bank overdraft shs. 5,000,000
Interest on loan paid to Bush shs. 600,000
(vii) Bushek’s personal account showed Tshs. 2,000,000/=, 3,000,000/=
and 5,000,000/= as income received from Royalty, Dividend and
Realization respectively. A non-resident corporation paid dividend,
realization is part payment of sale of a building for Tshs.
20,000,000/=. The building that costed Tshs. 4,000,000/= in year
2000 and used for residence was sold to Mr. John in 2004.
(viii) Asset acquisition during the year were:
Land rover Tshs. 10,000,000/=1
Tractor Tshs. 40,000,000/=2
Pick up Tshs. 7,500,000/=1
Land cruiser Tshs. 35,000,000/=1
All these were used in the partnership business. The depreciation basis as
at 31/12/2003 after pooling assets based on the Income Tax Act, 2004
showed the following:
Class I II
Value 50,000,000/= 123.000,000/=
Required:
(i) Determine the partnership profits/losses
(ii) Determine the partners taxable income
Suggested Solution
(i) Computation of partnership profit/loss
Profit/(Loss) per accounts (2,600,000) ADD BACK: 10% fuel & oils 9,000,000 Partners’ salaries 16,000,000 Depreciation allowance 10,800,000 Interest on loan 600,000 Weight Bridge fines 3,500,000 Total tax paid 3,300,000 Tip to Police 600,000 43,800,000 Subtotal 41,200,000 Deduct Interest on drawings (note v) 400,000 Depreciation – Note 1 79,187,500 79,587,500 Adjusted Distributable Loss (38,387,500)
Note 1:
Computation of Depreciation Allowance:
DEPRECIABLE ASSETS DEPRECIABLE ASSETS POOLS
CLASS I (Tshs.) II (Tshs.)
RATE – A 37.5% 25%
TWDV – 1 Jan 2004 50,000,000 123,000,000
Additions:
Land Rover 10,000,000
Tractor 40,000,000
Pick Up 7,500,000
Land Cruiser 35,000,000
DEPRECIATION BASE – B 102,500,000 163,000,000
DEPRECIATION ALLOWANCES 38,437,500 40,750,000
TWDV – 31 Dec 2004 64,062,500 122,250,000
(ii) Computation of partners’ taxable income
Bush Bushek Michapo Total Salaries 8,000,000 4,000,000 4,000,000 16,000,000 Fuel & Oils 3,000,000 3,000,000 3,000,000 9,000,000 Interest on loan 600,000 - - 600,000 Inter on drawings (400,000) (400,000) Share of loss 12,795,833 12,795,833 12,795,833 38,387,500
Subtotal -1,195,833 -5,795,833 -6,195,833 -13,187,500
Add: Inv. Income
Royalty 2,000,000
Dividend FWP- Sec 86
Realization 5,000,000
Total -1,195,833 1,204,167 -6,195,833
Question 11.
What are investment assets under the Income Tax Act 2004?
Suggested Solution
According to section 3 of the Income Tax Act 2004; Investment Assets are:
(i) Shares and securities other than shares:
By a resident parent in its resident subsidiary, or
Listed on Dar es Salaam Stock Exchange, or
By a non resident controlling less than 25% of the controlling
shares of the company.
(ii) A beneficial interest in a non resident trust.
(iii) Interest in land and buildings other than:
A private residence in use for three years or more other than such a
residence that realizes a gain of more than 15,000,000,
An individual’s land that has been used for purposes for agricultural
purposes for the past two years and whose market value does not
exceed 10,000,000 at the time of realization.
Question 12.
What is the difference between an investment company and a finance
company for tax purposes?
Suggested Solution
Investment company – a company whose activities consists mainly in the
making and holding of investments whether in land and buildings for the
purpose of receiving rents or in securities for the purpose of receiving
interest or dividend and a major part of whose income is derived there
from.
Finance company – a company whose activities consists mainly in dealing
in securities, land or buildings. It is an essential feature of the business of
such a company to vary its investments and turn them to account and
investments are its stock in trade, to be bought and sold. Finance company
also deals with provision of loans to individuals and businesses.
Question 13.
In year 200X, the commissioner for Large Tax Payers received a return of
income of KK Ltd showing a net profit of Tshs 214,136 computed as
follows:
Tshs Sales 273,970,710 Cost of sales 150,000,355 Gross Profit 123,970,355 Operating Expenses 27,000,000 Other expenses 96,756,219 Net Income 214,136
Included in other expenses item is a list of the following:
(i) Exchange Loss of Tshs 42,143,000 on the importation of raw
materials,
(ii) Compensation of Tshs 618,500 to terminated employees,
(iii) Amortized amount to replace a roof – Tshs 4,733,000,
(iv) Payments made to remove erroneous terms of a loan contract – Tshs
821,000,
(v) Penalties for VAT – Tshs 3,500,000,
(vi) Managing Directors personal visitors entertainment expenses – Tshs
3,880,000,
(vii) Political parties contributions – Tshs 1,007,450,
(viii) Board meetings expenses – Tshs 4,753,205,
(ix) Incentives – Tshs 1,473,741,
(x) Treasury Loan used by Director to go abroad on vacation – Tshs
3,543,123,
(xi) Cost to prepare revised accounts – Tshs 1,232,456,
(xii) Construction cost of a new laboratory – Tshs 13,520,620,
(xiii) Cancellation of contract – Tshs 8,326,124,
(xiv) Salaries for future services – Tshs 6,577,000,
(xv) Legal cost for unsuccessful recovery of salaries from terminated
employees – Tshs 627,000.
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Assume that you are in charge of one of the Audit Teams at the Large
Taxpayers Department and the Commissioner for Large Taxpayers has
assigned you the tax file of KK Ltd.
REQUIRED:
Apply the provisions of the Income Tax Act 2004 to determine the taxable
income for, and tax payable by, KK Ltd.
Suggested Solution
Computation of taxable income of, and tax payable by, KK Ltd.
Tshs Net Income as per accounts/return 214,136 ADD: Amortized amount to replace a roof 4,733,000 Penalties for VAT 3,500,000 MD’s personal visitors entertainment expenses 3,880,000 Political parties contributions 1,007,450 Treasury Loan used by Director 3,543,123 Construction cost of new laboratory 13,520,620 Salaries for future services 6,577,000 Adjusted Taxable Income 36,975,329 Tax thereon (30%) 9,928,599
Question 14.
What is blended Loan for the purpose of Income Tax Act 2004?
Suggested Solution
By virtue of section 32(7) of the Income Tax Act 2004, a blended loan
means a loan under which payments by the borrower represent in part a
payment of interest and in part a repayment of capital where the interest
part is calculated on capital outstanding at the time of each payment and
the rate of interest is uniform over the term of the loan.
Question 15.
Kibwe Traders is a made up of three partners, i.e. Sindi, Sinda, and Sindika
with profit sharing ratios of 45%, 15% and 40% respectively. The
following details were obtained in their Financial Statements as at 31st
December 2005:
Tshs Tshs Gross Profit 173,900,000 Interest on Sindika’s overdrawn 7,750,000 Profit on sale of machine 2,210,000 183,860,000 Operating Expenses: Salaries and Wages 7,300,000 Sundry expenses 7,900,000 Office rent 725,000 Medical expenses 7,250,000 Accounting fees 7,650,000 Charity and donations 7,625,000 Entertainment 7,500,000 Salaries to partners (equally) 50,890,000 96,840,000 Interest on share Capital: Sindika Sindi 745,000 Sinda 755,000 1,500,000 Interest on Loan: Sinda 725,000 Sindi 715,000 Sindika Nil 1,440,000 Depreciation: Factory Building 7,500,000 Processing Machinery 7,450,000 Saloon car 7,200,000 22,150,000 Net Profit 61,930,000
Additional Information:
1. In march, 2005 office rent was paid to Sindika,
2. Half of the medical expenses were in respect of treatment of partners
and their families equally; donation was paid to Rombo Orphans
Center,
3. Entertainment includes Tshs 230,000 in respect of entertainment to
Sindika,
4. Legal fees in respect of traffic offence to Sindi – Tshs 760,000,
5. In april, 2005, there was a capital sum paid to MD Motors Ltd for
acquiring patent right that has been put into use from 1st January
2005 to manufacture car chases – Tshs 230,000. The useful life of the
right is 5 years and 8 months,
6. Tshs 725,000 had been paid to Tax Consultant in respect of an appeal
made against assessment by TRA,
7. In February 2005, there were expenses of three-fold: Motor
Expenses – Tshs 850,000, Bank Interest on Loan – Tshs 125,000 and
Sundry Expenses – Tshs 190,000. However, in September 2004 there
was a capitalized interest of Tshs 6,000,000,
8. In 31st December 2004, owned the factory worth Tshs 700,000,000;
Machinery Tshs 10,000,000 and Motor Vehicle Tshs 600,000,000
where as accumulated depreciation for a factory was tshs
800,000,000; Machinery Tshs 13,640,000 and Motor vehicle Tshs
7,700,000. [The depreciation rate is 15% on reducing balance
method].
REQUIRED:
Compute adjusted partnership income and partners’ income for the year
ending 31st December 2005.
[Note: The profit on sale of Machinery is from Sindika domestic tailoring
machine and interest on overdraft is not related to business].
Suggested Solution
KIBWE TRADERS ADJUSTED PARTNERSHIP INCOME STATEMENT FOR
THE YEAR ENDED 31ST DECEMBER 2005.
TSHS TSHS Profit as per accounts 61,930,000 Add: Non Allowable Deductions Charity & Donations 7,625,000 Entertainment to Sindika 230,000 Legal fee – Sindi 760,000 Patent right 230,000 Depreciation 22,150,000 Salaries to partners 50,890,000 Interest on share capital 1,500,000 Interest on loan 1,440,000 Medical expenses 3,625,000 88,450,000 150,380,000 Less: Allowable Deductions Interest on overdraft 7,750,000 Profit on sale of machine 2,210,000 Depreciation – Note 1 193,414,583 203,374,583 Adjusted partnership income 52,994,583
Note:
Class II: Cost [10,000,000+13,640,000+600,000,000+7,700,000] 631,340,000 Depreciation (2004) – 25% 157,835,000 WDV (31st December 2004) 473,505,000 Depreciation (2005) – 25% 118,376,250 WDV (31st December 2005) 355,128,750 Class VI: Cost [800,000,000+700,000,000] 1,500,000,000 Depreciation – 5% 75,000,000 Class VII: Cost 230,000 Depreciation (1/6) 38,333 Total Depreciation 193,414,583
Partners’ Income from Partnership:
Sindi Sinda Sindika Ratio 45% 15% 40% Loss (23,847,562) (7,949,187) (21,197,833) Medical Expenses 1,208,333 1,208,333 1,208,333 Entertainment - - 230,000 Salaries 16,963,333 16,963,333 16,963,333 Interest on capital 745,000 755,000 - Interest on loan 715,000 725,000 - Total Share (4,215,896) 11,702,479 (2,796,167)
Question 16.
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Paying tax more than once on the same tax base is a serious problem for
taxpayers generally. This is why double taxation has been termed as “the
central problem of international taxation” and its handling causes much of
complexity in the international tax system.
REQUIRED:
(a) Define theterm “International Double Taxation”.
(b) Illustrate the occurrence of international double taxation as a result
of clashes between tax jurisdiction principles.
(c) Describe the two main methods used to eliminate double taxation.
Suggested Solution
(a) International double taxation may be loosely defined as the
imposition of comparable taxes in two (or more) states on the same
taxpayer in respect of the same subject matter and for identical or
overlapping periods.
(b) Double taxation can occur whenever any of the following three
phenomena happen:
(i) Concurrent full liability to tax (inconsistent residency rules or
Dual Residence Clash).
(ii) Conflict of residency against source or situs (Source Vs
Residence Clash). One state may tax a person on his worldwide
income because he is resident (i.e. full liability to tax) while
another state may tax the same person because he derives
income from that state (i.e. limited liability to tax).
(iii) Concurrent limited liability to tax (dual source clash).
One person may be subjected to limited liability to tax in two
states. In this case, two or more countries claim source-taxing
rights e.g. a company incorporated in country A having a
permanent establishment in country B which derives income in
country C. Both B and C will have limited liability to tax the
income.
(c) International double taxation can be eliminated by:
(i) Exemption Method
Under this method, the investor’s country of residence exempts
from taxation income from foreign sources. The exemption may
be integral or may occur with progression. In the former case,
the exempted income is not taken into account in determining
the tax rate to be applied on the domestic income. In the later
case the exempted income is actually taken into account in
determining the applicable tax rate.
(ii) Credit Method
The investor’s country of residence treats the foreign tax,
within certain statutory limitations, as if it were a tax paid to
itself.
Question 17.
Distinguish between the terms “Domestic Permanent Establishment” and
“Foreign Permanent Establishment”.
Suggested Solution
“Domestic Permanent Establishment” means permanent establishments of
non-resident individual, partnership, trust or corporation situated in the
United Republic of Tanzania.
“Foreign Permanent Establishment” means all permanent establishments
of an individual, partnership, trust or corporation that are situated in any
one country that is not the country in which the individual, partnership,
trust or corporation is resident but excludes a domestic permanent
establishment.
Question 18.
Outline five benefits that Tanzania may get from Double Taxation Treaties.
Suggested Solution
Benefits that Tanzania may get from Double Taxation Treaties include:
(i) Minimizing the negative impact of loss of revenue to the government,
(ii) Reducing distortions to investment flows, by providing good
governance and transparency,
(iii) Enhancing the competitiveness of domestic businesses,
(iv) Promoting domestic compliance with respect to income arising
outside the country,
(v) Allowing for the exchange of information between countries and
hence providing a country with means of accessing information
otherwise not available.
Question 19.
The Income Tax Act 2004 specifies a certain statutory time limit for
making adjustment on assessments by the commissioner of Income Tax.
Suggested Solution
Section 96(2) and (3) provides a time limit for the commissioner for
Income Tax (CIT) to make adjustment on assessment as follows:
(i) In case of a self assessment (under S.94) or jeopardy assessment, the
CIT may adjust assessment within three years after the date for filing
the return of income which relates to such assessment,
(ii) In case of best judgment assessment (under S.95(2)), the CIT may
adjust the date on which the notice of assessment is served on the
person assessed,
(iii) For a person who fails to file a return of income with the intent of
evading or delaying payment of tax, the CIT may make adjustment on
assessment at any time,
(iv) For inaccurate assessment by reason of fraud by or on behalf of the
assessed person, adjustment on assessment can be raised at any time
by the CIT.
Question 20.
Timago Co. Ltd is engaged in manufacturing of different types of leather
bags and cases. Its total number of employees is 100 for which the
company paid 15,540,000 to TRA as PAYE collections for the period
beginning January 2006 to June 2006. The company filed the statement of
withholding taxes for th period on 30th September 2006.
REQUIRED:
Compute the penalty (if any) with regard to filing a statement of
withholding taxes as per section 98(2) of the Income Tax Act 2004.
(Where applicable, the statutory interest rate is 20% per annum).
Suggested Solution
Due date for filing statement of withholding taxes by Timago for the
period beginning January to June 2006 is: 30th June 2006.
The date on which Timago filed the statement: 30th September 2006.
Failure Duration: 3 months.
Interest computations – S.98(2)
Statutory interest rate = 20% (or 1.67% per month)
Interest = 15,540,000 x 1.6667% = 259,000
Compare with 100,000 and take the greater.
Therefore interest = 259,000 x 3 = 777,000
Question 21.
Yuhang Ltd is a company registered in China and has no permanent
establishment in the United Republic of Tanzania. The company operates a
sea transport business. During the year of income 2006, the company
carried out the following transactions:
(i) Received Tshs 400 million for carriage of cargo from Tanzania to
China,
(ii) Received Tshs 100 million for transport of passengers from Tanzania
to South Africa.
(iii) Received Tshs 1,000 million for transport of cargo from China to
United Kingdom.
(iv) Received Tshs 300 million for rental of containers for carrying cargo
from Tanzania to India.
REQUIRED:
Advise Yuhang Ltd on Income tax consequences of the above transactions.
Suggested Solution
Since Yuhang is a non-resident sea transport business operator, tax rules
applicable are those provide by section 90(3) and (4).
Taxable Income of Yuhang Ltd:
Carriage of cargo to China 400 mil Transportation of passengers to S.A 100 mil Transportation of cargo [China to U.K] Nil Rent of containers to India 300 mil 800 mil
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Single Installment tax payable thereon
= 5% x 800 mil
= 40 mil
Also the company is entitled to a tax credit for the year of income in an
amount of single installment as above.
Question 22.
Define a Charitable Organization as per section 64 (8) of the Income Tax
Act 2004.
Suggested Solution
Charitable Organization means a resident entity of a public character that
satisfies the following conditions:
(i) The entity was established and functions only as an organization for
relief of poverty or distress of the public or the provision of general
public health, education, water, or road construction or
maintenance and
(ii) The entity has been issued with a ruling from the commissioner
stating that it is a charitable organization.
Question 23.
What are the conditions to be fulfilled by a taxpayer with regard to refund
of overpayment of income tax as per section 126(3) of the Act.
Suggested Solution
Section 126(3) requires a person who claims a refund from the
commissioner to apply to the commissioner in writing within three years
of the later of:
(i) The end of the year of income during which the events occurred
that gave rise to the payment of the excess tax or
(ii) The date on which the excess was paid
Question 24.
Kigongo Company Limited was incorporated in Tanzania and commenced
its business on 1st February 2005 as a retailer of audio-visual products in
Tanzania. It has drawn up its first accounts to 31st December 2005, the
draft of which together with the additional information was as follows:-
Notes “000”
Tshs.
“000”
Tshs.
Sales 1 950,000
Dividends 2 5,000
Interest income 3 12,000
Contractual penalties 4 5,000 972,000
Expenses:
Directors fees 5 320,000
Salaries 300,000
Interest expenses 6 80,000
Rent and rates 220,000
Legal and professional fees 7 20,000
Contributions to retirement fund 8 15,000
Depreciation 9 120,000
Travelling and entertainment 22,000
Provisions 10 28,000
Insurance 18,000
Sundries 11 10,000 1,153,000
Loss for the year (181,000)
Additional notes:
1. Sales figure includes Tshs. 1,000,000 for sale of furniture which was
used by the company.
2. The company had bought some shares from City Stock Exchange.
These were shares of Sungura Cement Company which distributed
dividends during the period.
3. The Company earned Tshs. 8,000,000 as interest from its bank
deposits and another Tshs. 4,000,000 from a director to whom the
company had extended a personal loan. The Director used the loan
to acquire a building in Kenya.
4. The amount was received as a result of a business contract which the
other party breached it.
5. Directors fees were paid to the following persons:-
Mr. A. 200,000,000
Mrs. A (wife of Mr. A) 50,000,000
Mr. B. (Mr. A’s brother) 70,000,000
320,000,000
6.
Interest paid to bank on overdraft 20,000,000 Finance charge on hire purchase agreements 50,000,000 Interest on failure to pay previous years Vat 10,000,000 80,000,000
7. Audit fees 10,000,000
Legal fees for staff contracts and retirement funds 6,000,000
Amount paid to Tender Board members to facilitate
winning a bid
4,000,000
20,000,000
8. Employees contributions 7,500,000
Employer’s contributions 7,500,000
15,000,000
The contributions were made to an approved retirement fund.
9. The company acquired the following assets:
On 15th February 2005 – Furniture and equipment 100,000,000
On 15-02-2005 – Computers and accessories 300,000,000
On 1st September 2005 – Motor car (station wagon) 200,000,000
The computers were acquired on hire purchase terms for 12 months.
The down payment of Tshs. 120,000,000 was made on 15th February
2005 and the first monthly instalment of Tshs. 20,000,000 was due on
15th February 2005 and the first monthly instalment of Tshs.
20,000,000 was due on 15th March 2005. The cash price of the
computers was Tshs. 300,000,000.
10. Provision for debtors (specific) 11,000,000
Provision repairs (estimated) 8,000,000
Provision for stock obsolescence 9,000,000
28,000,000
11. Sundries included a traffic fine of Tshs. 3,500,000. The balance was
general consumables used by the office.
REQUIRED
Based on the information available, determine the taxable income of
Kigongo Company Limited and its tax liability for the year of income 2005.
Suggested Solution
Computation of taxable income of Kigongo Company for the year of
income 2005:
Net loss for the year (181,000,000) Add: Non Allowable Deductions: Directors fees Nil Penalties (VAT) 10,000,000 Tender Board Expenses 4,000,000 Employees Contributions 7,500,000 Depreciation 120,000,000 Provisions 28,000,000 Traffic fine 3,500,000 173,000,000 8,000,000 Deduct: Allowable Deductions: Sales of furniture 1,000,000 Dividends (FWP) 5,000,000 Interest Income Nil Business contract penalties Nil Depreciation allowances (Note 1) 130,500,000 136,500,000 Tax Loss 144,500,000
No tax liability and the loss can be carried forward as an expense for next
year of income.
Note 1:
Computation of depreciation allowances
Class I Class III Total 37.5% 12.5% Computers 300,000,000 Motor cars 15,000,000 Furniture & Equipments 100,000,000 315,000,000 100,000,000
©Tax Laws in Tanzania Publication Number :: TLT-01
Kessy Juma :: http://www.taxation-tz.com Page 11
Less: Incomings Furniture (1,000,000) Depreciation Basis 315,000,000 99,000,000 Depreciation allowance (118,125,000) (12,375,000) 130,500,000 WDV (31st Dec 2005) 196,875,000 86,625,000
Question 25.
The Mwanamboka Company Ltd is a parent company that is based in
Tanzania. It has two foreign subsidiaries; one in Zambia named
ZAMAFRICA Ltd having 51% shares and another in South Africa named
SAHI having 60% shares. The Zambian company has invested in a SAHI
which has similar business with that of the parent company,
Mwanamboka Company Ltd.
SAHI paid an interest of USD 150,000 to ZAMAFRICA. ZAMAFRICA does
not tax interest but tax dividends at a rate of 5%. The ZAMAFRICA Ltd
paid dividends to the parent company to the tune of USD 120,000 and
realized a business profit of USD 1,100,000 during the tax year of income
2005.
REQUIRED:
(i) Calculate the unallocated income and taxable income for the ZAMAFRICA Ltd
that is based in Zambia.
(ii) Determine the tax payable.
Suggested Solution
(i) Determination of unallocated income and total taxable income
Total Income – S. 74(2)
USD USD Interest 150,000 Business profit 1,100,000 1,250,000 Less: Distributions – S. 74 (1) (120,000) Unallocated Income 1,130,000
Company’s share (S. 75(1)) = 1,130,000 x 51% = USD 576,300
Taxable Income
Distribution (S.75(3))
Investment income = 150,000/1,250,000 x 576,300 = 69,156
Business income = 1,100,000/1,250,000 x 576,300 = 507,144
(ii) Determination of net tax payable (S. 75(4))
Tax on unallocated income = 576,300 x 30% = 172,890
Less: Tax on dividend for foreign company
(120,000 x 5%) 6,000
Total tax payable 166,890
Foreign tax relief (S.77(1)) Nil
Net tax payable 166,890
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This publication has been prepared by Juma Kessy – B. Com Hons (Accounting), UDSM
Let him be aware of any errors in this edition and send corrective suggestions, if any.