PUBLIC ACCOUNTANTS EXAMINATIONS BOARD

A Committee of the Council of ICPAU

CPA(U) EXAMINATIONS

LEVEL TWO

TAXATION – PAPER 11

THURSDAY 23 MAY, 2024

INSTRUCTIONS TO CANDIDATES
1. Time allowed: 3 hours 15 minutes.

The first 15 minutes of this examination have been designated for reading
time. You may not start to write your answer during this time.

2. Section A has one compulsory question carrying 40 marks.

3. Section B has four questions and only three are to be attempted. Each
question carries 20 marks.

4. Tax rates are provided on page 11.

5. Write your answer to each question on a fresh page in your answer

booklet.

6. Please, read further instructions on the answer booklet, before attempting

any question.

© 2024 Public Accountants Examinations Board

 Taxation – Paper 11

SECTION A

This Section has one compulsory question to be attempted

Question 1
Oriental Energies Uganda Limited (OEUL) was incorporated in Uganda in 2018
and is in the business of retail distribution of petroleum products including
Premium Motor Spirit (PMS), Diesel, Kerosene, Liquefied Petroleum Gas (LPG)
and lubricants. OEUL imports all the petroleum products from Oriental Energies
Tanzania Limited (OETL) for resale to its retail distributors that run the fuel
stations, wholesale to manufacturers and to other competitor companies in the
fuel distribution industry.
OEUL’s statement of profit or loss and other comprehensive income for the year
ended 31 December 2022 is as below
Notes Shs'000’
Revenue 1 90,080,600
Less cost of sales 2 (86,630,500)
Gross profit 3,450,100
Other income 3 1,852,900
Administrative expenses 4 (2,850,400)
Operating expenses 5 (1,752,100)
Finance costs 6 (960,800)
Loss before tax (260,300)
The following information is also provided.
1. Included in the revenue are the following amounts:
(a) Revenue from wholesale distribution of petroleum products Shs
3,560,800,000.
(b) Revenue from retail sale of petroleum products
Shs ‘000’
PMS 30,450,650
Diesel 17,051,300
Kerosene 20,600,000
LPG 14,400,500
Lubricants 4,017,350
86,519,800
(c) OEUL is registered for Value Added Tax (VAT) and this amount
includes Shs 612,816,000 that was charged to customers that
purchased lubricants.
2. Included in cost of sales are the following amounts:

23 May, 2024 Page 2 of 11

 Taxation – Paper 11

(a) Losses arising from fuel evaporation while in transit Shs

3,571,570,000.
(b) Returnable LPG containers each costing less than Shs 1 million
worth Shs 26,716,330,000.
(c) Import purchase of petroleum products from Tanzania inclusive of
withholding tax of Shs 2,790,500,000 and VAT of Shs 5,416,600,000
paid to customs Shs 56,342,100,000.
3. Included in other income are the following amounts:
Shs ‘000’
Gain on sale of returnable LPG containers 421,870
Interest on government treasury bills and bonds 230,500
Hospitality fees from storage of fuel from
competitors without fuel depots 1,234,800
Loss on sale of old computers 34,270
4. Included in administrative expenses are:
(a) Wages paid to casual workers not included in the payroll Shs
45,890,000.
(b) Depreciation of company equipment Shs 1,176,010,000.
(c) Amortisation of operating leases for the land on which the petrol
stations are constructed Shs 1,287,600,000.
(d) Directors' sitting allowances not taxed on the respective directors
Shs 340,900,000.
5. Included in operating expenses are the following amounts:
(a) OEUL recorded expired lubricants in June 2022 and has since
written them off valued at Shs 560,900,000.
(b) VAT paid on imported services Shs 847,090,000.
(c) OEUL recruited six Kenyan citizens to work as station managers and
paid tuition fees for their post graduate Diploma course at Uganda
Managers' Institute (UMI) Shs 344,110,000.
6. Finance costs include:
Shs ‘000’
Unrealised foreign exchange gain (649,210)
Interest expense 1,258,700
Unrealised foreign exchange loss 152,200
Realised foreign exchange loss 199,110
7. The following information relates to assets:
(a) The tax written down values as at 1 January 2022 were as follows:
Shs ‘000’
Class I 504,850
Class II 0
Class III 842,500

23 May, 2024 Page 3 of 11

 Taxation – Paper 11

(b) Additions during the year:

(i) OEUL acquired an LPG refilling machine for use at the head
office in Kampala at Shs 210,400,000.
(ii) Purchased 10 Office chairs at Shs 230,300 each.
(iii) Disposed of a scraped fuel delivery truck that was involved in
an accident for a consideration of Shs 85,983,000.
(iv) OEUL started construction of a fuel storage depot at its head
office in Kampala in the third quarter of 2021. Construction
was completed in 2022 and the asset was first put to use on 1
July 2022. The total cost of construction was Shs
892,456,000.
(v) 5 Lenovo ThinkPad laptops were acquired in 2022 each
costing 4,620,000 and assigned to staff in Arua and Lira
offices.
8. OEUL paid Shs 1 billion as provisional tax for the year ended 31 December
2022 and had an assessed loss of Shs 3,821,340,288 carried forward in
the year ended 31 December 2021.
Required:
(a) Advise OEUL on the chargeable income and the tax payable for the year
ended 31 December 2022 clearly showing the workings and the
justification.
(30 marks)
(b) Explain to OEUL’s accountant the:
(i) Roles of taxation.
(5 marks)
(ii) Principles of a good tax system.
(5 marks)
(Total 40 marks)

23 May, 2024 Page 4 of 11

 Taxation – Paper 11

SECTION B

Attempt three of the four questions in this Section

Question 2
Martin is an employee of Rock Telkom Limited (RTL), a leading
telecommunication company, specialising in the provision of voice and data
services to customers in Uganda. Martin has been in the employment of RTL
since December 2007 and has risen through the ranks from an Accounts
Assistant to the position of Chief Finance Officer. His job role entitles him to
various allowances and non-cash benefits, which are majorly paid through the
payroll.
For the year ended 31 December 2023, Martin received the following incomes
from RTL:
(a) In 1 October 2023, Martin clocked 46 years of age and as required by the
National Social Security Fund (NSSF) Act as amended, Martin applied to
the NSSF to process 20% of his accumulated savings of Shs 270 milliom as
at 1 October 2023.
(b) Martin was assigned a Toyota Fortuner car for his private and official use
that cost the company Shs 52,983,200 at the time it was provided to
Martin on 1 January 2022. No other staff uses this vehicle. Martin employs
a chauffeur that he pays Shs 456,700 per month.
(c) Martin incurs medical bills for his spouse and children but he is reimbursed
by the employer for all the amounts paid out to the medical service
Provider. For the year ended 31 December 2023, RTL reimbursed Martin
up to Shs 11,355,800.
(d) RTL runs an employee share acquisition scheme that grants shares to
exceptional staff performers in recognition of their dedicated service to the
company. Martin met his targets for the year ended 31 December 2023
and was rewarded 1000 shares in RTL valued at Shs 2,000 per share.
(e) RTL extends salary loans to staff recoverable in a period of four months.
No interest is charged on the loans while the statutory rate for the year
ended 31 December 2023 was 9%. During the year ended 31 December
2023, RTL extended loans of up to Shs 5,230,000 to Martin.
(f) Martin’s monthly gross salary for the current year is computed as 190% of
the previous year’s monthly net pay. For the year ended 31 December
2023, Martin’s monthly net pay was Shs 6,840,000.
(g) Martin owns a residential house in Najjera where he lives with his family
over the weekend. During the working days of the week, Monday to
Friday, Martin stays in a company owned house located in Luzira whose

23 May, 2024 Page 5 of 11

 Taxation – Paper 11

market value is estimated at Shs 2,400,000 per month and Martin

contributes Shs 500,000.
(h) The employer also pays a monthly salary of Shs 400,000 to Martin’s house
help and Martin tops it up by Shs 200,000.
(i) Martin also owns rental properties in Najjera suburb, Wakiso district where
he earns rental income. Below is an income statement for the period
ended 30 June 2023:
Shs ‘000’
Rental income 84,500
Expenses:
Utility bills (11,521)
Repairs and maintenance (36,540)
Salaries (25,690)
Net profit 10,749
Required:
(a) Determine Martin’s taxable employment income for the year ended
31 December 2023, highlighting elements of income that are not
taxable.
(10 marks)
(b) Advise Martin on the chargeable rental income earned in the year
ended 30 June 2023 and compute the rental tax payable.
(4 marks)
(c) According to the Income Tax Act Cap 340, define the term
employment and explain what constitutes employment income.
(6 marks)
(Total 20 marks)

23 May, 2024 Page 6 of 11

 Taxation – Paper 11

Question 3:
Accent Logistics Uganda Limited (ALUL) is a clearing and forwarding company
that commenced business in 2016 following acquisition of Globan Logistics
limited. The company operates as an agent of Mediterranean Cargo Shipping
Company and has customers all over the globe.
For the month of April 2024, ALUL had the following transactions, inclusive of
VAT where applicable.
Purchases
(a) Paid rent to its landlord UAT Properties Limited of $ 5,000 covering four
months to July 2024.
(b) Salaries for April 2024 were paid in arrears on 30 April 2024 totaling Shs
592,580,000.
(c) Clearing support services of Shs 6,481,200 were received from Bollot
Logistics Uganda Limited during the time when ALUL’s TIN was suspended
by the customs department.
(d) ALUL receives accounting services from D&T Auditors and in April 2024,
ALUL received a pro-forma invoice of Shs 9,751,000 from D&T Auditors
who completed their accounting support services in April 2024.
(e) Paid Shs 6,340,600 for health insurance of it staff for the 12 months period
ending 30 April 2024.
(f) Paid $1 400 for repair and maintenance of office premises.
Sales
(a) ALUL was requested by Mediterranean Cargo Shipping Company to
support an exporter of coffee based in Uganda with clearing and
forwarding the coffee to China for $ 2,300. While the work was completed
in April 2024, ALUL is yet to raise an invoice and as such payment has not
been received.
(b) ALUL was part of the consortium of clearing and forwarding companies
that cleared and forwarded the Oil Rig to Uganda’s Oil rich Albertine region
for Shs 340,782,900. ALUL’s share of revenue was 20% of the total sum.
(c) A Ugandan importing plastic from China, engaged ALUL’s clearing and
forwarding services to clear and forward goods from the port of export in
China, through Mombasa up to Kampala. The total contract sum was $
15,600 but ALUL outsourced part of this transaction of $ 9,500 from China
to Mombasa to Mediterranean Cargo Shipping.
(d) Paid $ 3,500 in license fees to Accent Logistics Kenya Limited (ALKL) for
the shared information communication Technology platform
The exchange rate in April 2024 was $ 1= Shs 3,700.

1
US Dollar

23 May, 2024 Page 7 of 11

 Taxation – Paper 11

Required:
(a) Determine for ALUL the VAT payable/ claimable for the month of April
2024.
(10 marks)
(b) ALUL is considering selling its business to a potential investor as a going
concern and has been informed by its tax consultant that this transaction
could potentially be exempted from VAT.
Required:
According to the VAT Act Cap 349, define the term exempt supply and the
obligations of the seller and purchaser for this transaction to be exempted
from VAT.
(10 marks)
(Total 20 marks)
Question 4
Mackain Uganda Limited (MUL) is in the business of hospitality operating a
number of hotels in the Kampala City. MUL pursued an expansion strategy in
2022 and has been purchasing several hotel equipment from within and without
Uganda. In the month of October 2023, MUL had a consignment of assorted
hotel equipment purchased in Italy including kitchenware, bathroom ware and
electronics. MUL paid an airline company $ 14,800 to transport the consignment
from the port of export in Italy to Jomo Kenyatta International Airport in Kenya
(JKIA) and $ 900, to transport the consignment from JKIA to Entebbe
International Airport (EBB). Insurance premium of $ 2,200 was paid to an
insurance company to cover the goods in transit from Italy to JKIA and an
additional $ 500 to insure the goods from JKIA to EBB. The value of goods
imported by MUL is indicated below:
$
Kitchenware 53,800
Bathroom ware 40,500
Televisions sets 10,400
Sockets 5,100
Fridges 11,600
Water heaters 23,500
The customs tax regime prescribes special customs duty rates for operators in
the hospitality industry with; import duty at 5%, excise duty at 10% and VAT at
the standard rate of 18%.
The exchange rate in the month when MUL declared these goods to customs for
assessment of customs duties was $ 1= Shs 3,700.

23 May, 2024 Page 8 of 11

 Taxation – Paper 11

Required:
(a) Advise MUL on the customs value of items imported and the applicable
taxes payable.
(10 marks)
(b) At the EBB customs warehouse, while MUL was engaging the customs
department to clear the consignment, MUL was informed by the customs
officials that some of the second-hand electronics were prohibited imports
and as such the customs officials confiscated the prohibited goods.
Required:
With example, explain to MUL the meaning of prohibited imports and
exports and restricted imports and exports.
(4 marks)
(c) For purposes of proper valuation of goods that MUL imported, the customs
officials have asked MUL to present supporting documents for examination
for completeness, authenticity, accuracy and correctness of the
information declared.
Required:
Advise MUL on any six supporting documents that should be presented for
review.
(6 marks)
(Total 20 marks)
Question 5:
Najim Uganda Limited (NUL) is a private company operating retail stores
(supermarkets) in Uganda. The market has witnessed stiff competition with the
entry of multinationals into the retail’s stores space. NUL is considering disposing
of its business to a well-established multinational retail store, Wallet Discrete
LLC, (WDL) a Dubai based conglomerate with presence all over the globe and
operating in Uganda under Wallet Discrete Uganda Limited (WDUL).
Negotiations between NUL and WDUL have been ongoing for close to four
months now on the transfer of NUL’s business to WDUL with minimal tax
implications. WDUL has been advised by its tax consultants that the sale
proceeds payable to NUL should be subjected to the appropriate withholding tax
rate. NUL’s tax consultants have also guided that the transaction could be
exempted from capital gains tax if certain conditions are met.
NUL’s business was recently valued and the following confirmed:
1. NUL’s business has assets net of liabilities of Shs 12,902,342,500 but a
review of NUL’s business valuation report revealed that assets were
overstated by Shs 128,445,600.

23 May, 2024 Page 9 of 11

 Taxation – Paper 11

2. NUL is looking to receiving a consideration of Shs 14,803,245,900 from

WDUL.
3. NUL has been asked to pay Shs 210,541,000, as selling commission to a
Brokerage company that brokered the deal between NUL and WDUL.
4. WDUL engaged services of a tax consultant to conduct a tax due diligence
on the affairs of NUL and the report of findings indicates that NUL has an
outstanding income tax liability of Shs 250,600,000 on its tax ledger with
the revenue authority.
5. NUL and WDUL have consented to adjusting the consideration by the tax
liability amount.
Required:
(a) You have been approached by NUL for advice on the withholding tax and
capital gains tax implications on this transaction. Explain the conditions
that must be met so that this transaction is not considered a disposal of
assets and hence no capital gains tax.
(4 marks)
(b) Assuming the conditions in (a) above are not met, compute the capital
gains tax and withholding tax payable in this transaction.
(10 marks)
(c) Advise NUL on three circumstances under which a taxpayer is treated as
having disposed of an asset.
(3 marks)
(d) In accordance with the Income Tax Act Cap 340, advise NUL on the
criteria to be followed in the determination of cost base of its assets.
(3 marks)
(Total 20 marks)

23 May, 2024 Page 10 of 11

 Taxation – Paper 11

Rates of Tax
Resident Individuals
Chargeable income Rate of tax
Not exceeding Shs 2,820,000 (Shs 235,000 pm) Nil
Exceeding Shs 2,820,000 (Shs 235,000 pm) but not 10% of the amount by which chargeable income
exceeding Shs 4,020,000 (Shs 335,000 pm) exceeds Shs 2,820,000 (Shs 235,000 pm)
Exceeding Shs 4,020,000 (335,000 pm) but not Shs 120,000 (10,000 pm) plus 20% of the amount
exceeding Shs 4,920,000 (Shs 410,000 pm) by which chargeable income exceeds Shs
4,020,000 (Shs 335,000 pm).
(a) Shs 300,000 (Shs 25,000 pm) plus 30% of
the amount by which chargeable income
exceeds Shs 4,920,000 (Shs 410,000 pm) and
(b) Where the chargeable income of an individual
Exceeding Shs 4,920,000 (Shs 410,000 pm)
exceeds Shs 120,000,000 (Shs 10,000,000
pm) an additional 10% charged on the
amount by which chargeable income exceeds
Shs 120,000,000 (Shs 10,000,000 pm).
Non-resident Individuals
Chargeable income Rate of tax
Not exceeding Shs 4,020,000 (Shs 335,000 pm) 10%
Exceeding Shs 4,020,000 (335,000 pm) but not Shs 402,000 (Shs 33,500 pm) plus 20% of the
exceeding Shs 4,920,000 (Shs 410,000 pm) amount by which chargeable income exceeds
4,020,000 (Shs 335,000 pm).
Exceeding Shs 4,920,000 (Shs 410,000 pm) (a) Shs 582,000 (Shs 48,500 pm) plus 30% of the
amount by which chargeable income exceeds
Shs 4,920,000 (Shs 410,000 pm) and
(b) Where the chargeable income of an individual
exceeds Shs 120,000,000 (Shs 10,000,000
pm) an additional 10% charged on the
amount by which chargeable income exceeds
Shs 120,000,000 (Shs 10,000,000 pm).
Small Business Taxpayers
Gross turnover With records Without records
Not exceeding Shs 10 million NIL NIL
Exceeding Shs 10 million but does not 0.4% of annual turnover in excess of Shs Shs 80,000
exceed Shs 30 million per annum. 10 million.
Exceeding Shs 30 million but does not Shs 80,000 plus 0.5% of annual turnover Shs 200,000
exceed Shs 50 million per annum. in excess of Shs 30 million.
Exceeding Shs 50 million but does not Shs 180,000 plus 0.6% of annual Shs 400,000
exceed Shs 80 million per annum. turnover in excess of Shs 50 million.
Exceeding Shs 80 million but does not Shs 360,000 plus 0.7% of annual Shs 900,000
exceed Shs 150 million per annum. turnover in excess of Shs 80 million.

23 May, 2024 Page 11 of 11