THE PUBLIC ACCOUNTANTS EXAMINATIONS BOARD

A Committee of the Council of ICPAU

CPA (U) EXAMINATIONS

LEVEL ONE

TAXATION – PAPER 6

TUESDAY 21 DECEMBER, 2021

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. This examination contains Sections A and B.
3. Section A is bound separately from Section B.
4. Attempt all the 20 multiple-choice questions in Section A. Each question
carries 1 mark.
5. Attempt four out of the five questions in Section B. Each question carries
20 marks.
6. Tax rates are provided on page 8.
7. Write your answer to each question on a fresh page in your answer
booklet.
8. Please, read further instructions on the answer booklet, before attempting
any question.

© 2021 Public Accountants Examinations Board

 Taxation – Paper 6

SECTION B
Attempt four of the five questions in this section
Question 2
Unicon Generations Limited (UGL) is an electricity generation company that
operates electricity generation facilities in Uganda. Provided below is the financial
statements extract for the period ended 31 July 2021:
Details Notes Shs ‘000’
Income
Concession fees 1 7,167,000
Income from Ringo dam 32,430,000
Other operating income 4,034,000
Expenditure
Staff costs and employee benefits (3,412,000)
Administration expenses 2 (4,811,000)
Depreciation charge (26,486,000)
Operating profit or loss 8,922,000

Notes:
1. Included in concession fees is Shs 652 million received in advance from a
contractor for a 15-year concession agreement.
2. Included in administration expenses are:
(a) A donation of 6,359,000 to White Angels a local football club in
Paidha. The club was exempted from income tax from July 2020 to
June 2021.
(b) Training expenses of Shs 56,763,000 used to train Ugandan resident
plant operators after the commissioning of one of its power plants in
West Nile.
(c) Grid monitoring software of Shs 4,000,000 with an estimated useful
life of 5 years.
(d) Directors’ allowance not included in their employment benefits Shs
114,000,000.
(e) Transfer of Shs 942 million to an escrow account in United Kingdom
as condition of a concession agreement.

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 Taxation – Paper 6

Additional Information:
1. The opening tax written down values as at 1 August 2021 were as follows:
Shs ‘000’
Class I 800,489
Class II 78,514
Class III 818,010
2. During the year, UGL bought the following items for its Arua sub-station:
(a) 6 brand new double cabin pickups each costing 141 million.
(b) Heavy duty thermal generator bought at Shs 252.3 million.
(c) A brand new, electric forklift with standard capacity at a cost of Shs
90 million.
(d) A new set of power plant alternators worth Shs 43.2 million.
Required:
(a) Compute UGL’s chargeable income and corporation tax payable for the
year ended 31 July 2021.
(14 marks)
(b) In accordance with the Income Tax Act Cap. 340 explain the conditions
under which a person is allowed a deduction for bad debts written off.
(6 marks)
(Total 20 marks)
Question 3
Ms. Betty Busingye is a medical practitioner employed with Danzel Health
International (DHI), a tax exempt Non-Governmental Organization in the
Bunyoro Sub-Region of Uganda. Below are her terms of engagement effective 1
January, 2021.
1. Gross salary of Shs 14 million per month, and an extra month’s pay at the
end of every year in December.
2. She is entitled to a provident fund contribution of 10% by the employer
and 2% by the employee. This fund is managed by an insurance company
registered to manage retirement benefit scheme.
3. In the first week of employment, she was booked into a hotel. She was
paid over-night allowance of Shs 160,000 exclusive of the cost of meals for
each of the five nights she spent in the hotel.
4. DHI renewed Betty’s practicing license with the medical council for the
year Shs 1.5 million.
5. She is entitled to hardship allowance equivalent to 5% of her gross
monthly pay.

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 Taxation – Paper 6

6. She was given a brand-new double cabin pick-up valued at Shs 141 million
to facilitate her work.
7. She is entitled to life insurance premium Shs 12 million per year.
8. She is entitled to house rent of Shs 1.2 million per month.
9. DHI provides lunch to all staff at the regional office canteen at Shs 5,000
per day.
10. She is entitled to entertainment allowance of Shs 300,000 per month.
11. In December,2020 DHI gave a shopping voucher of United States dollar
(USD) 200 to every staff member. The exchange rate at the time was 1
USD: Shs 3,600.
Required:
(a) Compute Betty’s Chargeable income and tax payable for the period ended
31 December, 2020.
(16 marks)
(b) In accordance with the Income Tax Act Cap. 340, explain the meaning of
employee share acquisition scheme and the tax treatment of shares
acquired under the scheme
(4 marks)
(Total 20 marks)
Question 4
Rodend Mechanicals Limited (RML) is an engineering company dealing in the
supply, installation, and servicing of mechanical equipment. Below is a summary
of their transactions for the month of October 2021:
Sales (all VAT inclusive where applicable)
1. Sold a horizontal stabilizer to an aviation school in Entebbe worth Shs 18
million. RML charged Shs 3.2 million for installation of the equipment.
2. Supplied foldable vehicle cabin cover, floor mats, and seat covers worth
Shs 6.2 million.
3. Supplied a pre-foam machine to a mineral water bottling company located
in Bushenyi at Shs 42 million.
4. Designed and installed six container units at Shs 18.3 million.
5. RML’s engineers serviced the Managing Director’s double cabin pick-up for
free however, this kind of service is valued at Shs 835,000.
6. During the month, RML was hired to provide consultancy services in the
valuation of motor vehicles due for disposal by TMN a mobile network
operator. RML charged Shs 16.2 million for the service which TMN is yet to
pay.
7. RML technicians also standardized weighing scales for a taxable research
institution worth Shs 1.2 million exclusive of a trade discount of 5%

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 Taxation – Paper 6

Purchases and expenses (all VAT exclusive where applicable)

1. During the month, RML paid for the following utilities:
Shs
Telephone bill 620,000
Water bill 123,000
Internet charges 420,000
2. Paid staff salaries of Shs 23.8 million.
3. Purchased motorized fumigation pumps of Shs 82 million.
4. RML also paid in advance Shs 18 million to a local manufacturer to
customize a packaging machine for one its clients.
Required:
(a) Compute RML’s VAT payable or claimable for the month of October 2021.
(10 marks)
(b) In Accordance with the Value Added Tax Act Cap. 349 explain the:
(i) particulars of a simplified tax invoice.
(4 marks)
(ii) six records that should be kept by a registered person.
(6 marks)
(Total 20 marks)
Question 5
(a) Jerome Junior (JJ) lost his job in October 2021 due to the effects of the
COVID-19 pandemic. In November 2021 he imported a set of equipment
from Istanbul, Turkey to start a carpentry business. He incurred the
following costs:
(i) He paid the manufacturer United States dollar (USD) 22,300 (Free
on Board) for the items.
(ii) Shipping fees from the port of Istanbul to the port of Mombasa USD
1,200, insurance of USD 830, and port handling costs of USD 340.
(iii) Training costs of machine operators USD 650 and bought a special
packaging container for the transportation for the equipment of USD
120.
(iv) He paid installation fees of USD 310 to an authorized operator in
Uganda.

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 Taxation – Paper 6

Additional Information:
The applicable tax rates are as follows:
Import duty 25%
Value added tax 18%
Excise duty 20%
Withholding tax 6%
The prevailing exchange rate at the time of importation was 1 USD: Shs
3,600.
Required:
Determine JJ’s customs value and custom taxes be paid.
(12 marks)
(b) JJ is also deals in real estate he has 23 apartments in Mbarara City owned
and managed by his company Spear Housing Limited (SHL). For the period
ended 30 September 2021, SHL recorded the following transactions
relating to the real estate business:
(i) Monthly rental collection of Shs 1.5 million from each apartment.
(ii) Incurred the following costs:
Shs ‘000’
Installation of energy efficient electrical appliances 3,400
Repairs and maintenance 1,800
Monthly security costs 620
Monthly cleaning costs 400
(iii) SHL is servicing a loan which was used to construct the apartments.
During the year, the SHL paid Shs 16.8 million of which 14% was
interest payment on the loan.
Additional Information:
Security and cleaning costs are paid for by the tenants.
Required:
(i) Determine SHL’s rental income and tax liability for the period.
(6 marks)
(ii) Explain the meaning of ‘income splitting’ and the circumstances under
which a taxpayer is treated as having attempted to split income.
(2 marks)
(Total 20 marks)

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 Taxation – Paper 6

Question 6
(a) Describe the differences between private limited companies and public
limited companies.
(6 marks)
(b) Explain the reasons for merging of businesses.
(8 marks)
(c) Explain the causes of failure of mergers in many countries.
(6 marks)
(Total 20 marks)

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 Taxation – Paper 6

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 80,000
exceed Shs 30 million per annum. Shs 10 million.
Exceeding Shs 30 million but does not Shs 80,000 plus 0.5% of annual Shs 200,000
exceed Shs 50 million per annum. turnover 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.

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