THE PUBLIC ACCOUNTANTS EXAMINATIONS BOARD

A Committee of the Council of ICPAU

CPA (U) EXAMINATIONS

LEVEL ONE

TAXATION – PAPER 6

TUESDAY 22 DECEMBER, 2020

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 of the five questions in Section B. Each question carries 20
marks.
6. Tax rates are provided on page 7 – 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.

 2020 Public Accountants Examinations Board

 Taxation – Paper 6

SECTION B
Attempt four of the five questions in this section
Question 2
Hook Media Limited (HML) is a National Newspaper operating from Industrial
Area Kampala,with publications in multiple languages and an additional business
line in electronic media.
Below is an extract of HML Statement of profit, loss and other comprehensive
income for the period ended 30 June, 2019:

Notes Shs ‘000’

Revenue 905,900
Cost of Sales (678,000)
Gross Profit 227,900
Other Income 180,300
Distribution costs 1 (82,400)
Administrative Expenses 2 (141,300)
Other Operating expenses 3 (81,215)
Profit before Tax 103,285
Notes:

1. Included in the distribution costs is Shs 55 million used to acquire a

specialized promotional mobile truck pre-installed with digital display and
public address system.
2. Administrative expenses include:
(i) Training expenditure of Shs 22 million used for the training of the
company’s marketing staff.
(ii) Equipment depreciation of Shs 18 million.
(iii) Maintenance of the Managing Director’s farm for Shs 6 million, a
benefit which was not included in his employment income.
(iv) Income tax penalties of Shs 8.3 million.
(v) Shs 13 million spent on staff end of the yearparty.
3. Other operating expenses include:
(i) Shs 45 million carried to the reserve fund.
(ii) Shs 620,000 penalty for wrong parking.
(iii) Field earpiece sets of Shs 950,000.
4. The company acquired the following depreciable assets during the year:

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 Taxation – Paper 6

(i) 3 distribution mini-vans for Shs 75 million. The vans have a 14 seat
capacity.
(ii) State-of-the-art printing press for Shs 324 million.
(iii) Professional cameras for Shs 42 million.
(iv) Office furniture and fitting for Shs 18 million installed in the Mbale
regional office.
5. The written down values as at 1 July, 2018 for its depreciable assets were
as follows:
Shs ‘000’
Class I 121,000
Class II 327,000
Class III 181,000
Class IV 217,000
6. During the year, HML constructed a building worth Shs 630 million near
offices in Mbarara which was completed on 30 August 2018 but occupied
on 1 January 2019 after an official opening ceremony officiated by the
Managing Director.

Required:

(a) Determine HML’s chargeable income and tax liability for the year ended 30
June, 2019.
(14marks)
(b) Explain the considerations for determining the residency of a resident
company and individual in accordance to the provisions of the Income Tax
Act Cap 340.
(6 marks)
(Total 20 marks)

Question 3

Chris Smith is an American national who was employed by a multiple national

cooperation to manage its subsidiary operations in Uganda effective 1 January
2019. The following are his terms of employment:
1. Gross monthly salary of Shs 15 million and annual gratuity of 10% payable
in the final month of every 12 months period.

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 Taxation – Paper 6

2. He was offered a house in Kololo with a monthly rental value of Shs 4

million. Chris did not occupy the house for the first 6 months of his
employment. He was staying with his wife in Nakasero.
3. On arrival in Uganda, Chris was offered a brand new Land Cruiser vehicle
with a market value of Shs 400 million and a driver whose monthly salary
was Shs 1.5 million.
4. Additionally, Chris has 2 housekeepers and a security guard each earning
Shs 200,000. The company pays for 1 housekeeper and the security guard
while Chris pays for the second housekeeper.
5. The company also pays for Chris an annual return ticket to the United
States to visit his family at the end of every year. The value of this air
ticket is Shs 5.4 million.
6. Because of the nature of his engagement, the company paid for Chris life
insurance of Shs 14.6 million for the year 2019.
7. During the year, Chris was appointed as a non-voting member of the
board. The board had 6 sittings and for each sitting, Chris was paid an
allowance Shs 1 million.
8. The company offered Chris a credit card which he uses to pay for both
private and official expenses. In September and October 2019, Chris used
Shs 3.1 million from the credit card for which he is not required to
account.

Required:

(a) Determine Chris’ employment income and tax liability for the year ended
December 2019.
(16marks)
(b) Explain the tax treatment of part time allowances under the Income Tax
Act.
(4 marks)
(Total 20 marks)

Question 4

Echo Media Ltd (EML) is a community based radio station operating is Western
Uganda. For the month of April 2020, EML recorded the following transactions:

Purchases (VAT Inclusive where applicable)

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 Taxation – Paper 6

1. Imported an advanced studio equipment from Turkey valued at Shs 56

million.
2. Acquired a new Studio Transmitter Link (STL) from a local vendor valued
at Shs 14 million in order toimprove the quality of transmission.
3. EML runs its studios using off-the-grid electricity powered by a generator.
The company paid Shs 1.8 million for the supply of generator fuel during
the month.
4. Hired Kamya Engineers to install a new lighting system on its mast. The
company paid Shs 3.2 million for the service.
5. Procured stationary of Shs 800,000 on credit from Ariga suppliers.
6. The company also paid utilities for the month as follows:
Shs
Electricity 320,000
Water 112,000
Internet service subscription 280,000
7. During the month, EML installed a new studio software for which the
company paid Shs 7.3 million.
Sales (VAT Exclusive where applicable)
1. EML received an order to run adverts for a telecom company for a year
valued at Shs 54 million.
2. EML’s sales agents recorded sales for radio spots worth Shs 22.3 million
during the month
3. Received payment of Shs 12 million from the sale of radio talk shows
invoiced in March 2020.
4. Additionally, EML sold weekly sports program to Merit Bet – a sports
betting company as a sole sponsor. The sponsorship is valued at Shs 6
million per show (EML recorded four shows in the month).
5. EML was hired by a local Non-Government Organisation to conduct
sensitization on the outbreak of foot and mouth cattle disease in the
region. This campaign is valued at Shs 8 million per month. However, as
part of Corporate Social Responsibility (CSR), EML discounted 50% of this
cost.

Required:

(a) Compute EML’s VAT claimable or payable for the month of April 2020.
(15marks)

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 Taxation – Paper 6

(b) Explain the meaning of deferment and the conditions for approval of
application for deferment, in accordance with the provisions of the VAT Act
Cap 349.
(5 marks)
(Total 20 marks)
Question 5

(a) Sandmine Enterprise Limited (SEL) is an importer of consumable products

into Uganda. The company would like to expand the business to re- export
to South Sudan. They have been informed that the vehicles currently used
may not be accepted for the re-export business.

Required:

(i) Explain to SELthe conditions for the vehicles to be allowed to re-

export any goods out of East Africa.
(12 marks)
(ii) Explain the functions of the directorate of customs in accordance to
the East African Customs Management Act.
(4 marks)
(b) Malcolm is a retired civil servant living in Kampala. As part of his
retirement plan, Malcolm invested Shs 98 million in treasury bonds for 15
years and earned interest of Shs 13,720,000 for the year 2019.
Additionally, Malcolm has multiple mobile money outlets from which his
total commission for the year was Shs 23.8 million.

Required:

Determine the total withholding tax applicable to Malcolm for the interest
and commissionearned in the year 2019.
(4 marks)
(Total 20 marks)
Question 6
(a) Describe the features of business environment. (6 marks)
(b) Explain the elements of a marketing mix. (4 marks)
(c) Discuss the role played by Small and Medium Enterprises (SMEs) in the
development of an economy.
(10 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 Tax Payable
Where the gross turnover of the taxpayer exceeds Shs 937,500 or 1.5% of the gross turnover,
Shs 50 million but does not exceed Shs 75 million whichever is lower.
per annum.
Where the gross turnover of the taxpayer exceeds Shs 1,312,500 or 1.5% of the gross turnover,
Shs 75 million but does not exceed Shs 100 million whichever is the lower.
per annum.
Where the gross turnover of the taxpayer exceeds Shs 1,687,500 or 1.5% of the gross turnover,
Shs 100 million but does not exceed Shs 125 million whichever is the lower.
per annum.
Where the gross the turnover of the taxpayer Shs 2,062,500 or 1.5% of the gross turnover,
exceeds Shs 125 million but does not exceed Shs whichever is the lower.
150 million per annum.

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 Taxation – Paper 6

Small Business Taxpayers Tax Rates where the gross turnover is below Shs 50 million

(i) Kampala City and Divisions of Kampala

Turnover
Business Trade Between Between Between
Shs 35 – 50 million Shs 20 – 35 million Shs 10 – 20 million
General trade 500,000 400,000 250,000
Carpentry/metal workshops 500,000 400,000 250,000
Garages (motor vehicle repair) 550,000 450,000 300,000
Hair and beauty salons 550,000 400,000 300,000
Restaurants or bars 550,000 450,000 300,000
Drug shops 500,000 350,000 100,000
Others 450,000 300,000 200,000

(ii) Municipalities

Turnover
Business Trade Between Between Between
Shs 35 – 50 million Shs 20 - 35million Shs 10 - 20 million
General trade 400,000 300,000 150,000
Carpentry/metal workshops 400,000 300,000 150,000
Garages (motor vehicle repair) 450,000 350,000 200,000
Hair and beauty salons 450,000 350,000 200,000
Restaurants or bars 450,000 350,000 200,000
Drug shops 400,000 300,000 150,000
Others 400,000 350,000 150,000

(iii) Towns and Trading Centres

Turnover
Business Trade Between Between Between
Shs 35 - 50 million Shs 20 - 35 million Shs 10 - 20 million
General trade 300,000 200,000 100,000
Carpentry / metal workshops 300,000 200,000 100,000
Garages (motor vehicle repair) 350,000 250,000 100,000
Hair and beauty salons 350,000 250,000 100,000
Restaurants or bars 350,000 250,000 100,000
Drug shops 300,000 200,000 100,000
Others 300,000 250,000 100,000

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