TAXATION OF EMPLOYMENT INCOME

REVISION QUESTIONS DAF INCOME TAX

Question 1
Michael is employed by Business Global Ltd., a Kampala based company. His
appointment letter in part reads as follows: -

Subsequent to your successful interview, the Board of Directors of Business

Global Ltd is happy to appoint you as the Financial Accountant. You will
report to the Director / Finance Manager who will assign you duties. The
following are your terms and conditions of services.

a) Your monthly basic salary shall be UGX. 500,000

b) You and your family will enjoy the company’s medical facilities through
the company’s established medical insurance scheme where the company
has committed an annual insurance premium of UGX.1, 200,000 on your
behalf.
c) You will be granted 30 days annual leave plus leave allowance of 10% of
your annual basic salary.
d) The company will meet your electricity, telephone and water bills in
addition to the monthly UGX.300, 000 rent for your accommodation.
e) You are entitled to a company car but due to the current breakdown of cars,
you will receive a monthly UGX.50, 000 in lieu of transport until after your
first anniversary when a car will be available for your use.
f) The company will contribute 10% of basic salary towards National Social
Security Fund (NSSF) while you will contribute 5% of your basic salary.
g) This appointment letter is effective 1.1.2020 The terms and conditions of
service shall be subject to change after you have completed your one-years’
probation period.
During the year, management reviewed the performance of Michael and having
been found excellent, on 1/7/2020 he was extended a loan of UGX.10, 000,000 at
5% interest to enable him furnish his house. The statutory rate was 20% p.a.

Like other employees, Michael was offered bonus of UGX.600, 000 in December
2020.
The company paid his annual utility bills as follows: -
UGX
Electricity 300,000
Water 250,000
 Telephone 180,000

Required:
Compute Michael’s annual taxable income from employment and the tax (PAYE)
payable by him for the year ended 31/12/2020

Question 2.
a) Define Gross Income in respect of a Resident and Non-Resident Person.
b) Jennifer Lopez has been appointed a Financial Accountant in Music World
Inc. Her appointment letter indicates the following terms and conditions;
UGX
i. Monthly basic salary 500,000
ii. Medical allowance per month 700,000
iii. She will be granted leave allowance of 5% of the annual basic
salary. Alternatively, payment in lieu of leave amounts to UGX 400,
000.
iv. The company meets her domestic electricity, telephone and water
bills worth UGX 300, 000 per quarter, plus accommodation rent
worth UGX. 200,000 per month.
v. She is entitled to a car, uses it 3 days a week for private purposes.
The value of the car is said to be UGX.7, 000,000.
vi. The company contributes 10% of the basic salary towards NSSF
while Jennifer contributes 5% of her basic salary.

During the month of December 2019, the following transpired: -

i. Jennifer took her annual leave.
ii. She was reimbursed UGX 170, 000 for accommodation fees spent
while performing duties of employment it was established that the
actual amounts spent on the said accommodation was UGX 100,000.
iii. Jennifer acquired a UGX.10, 000,000 loan from the employers to
furnish her house at a rate of 5%. The statutory rate at the moment
was 20%.
Required:
1. Calculate Jennifer’s Taxable Income for December 2019
2. Calculate her PAYE amounts.
Question 3
Douglas is employed by Y2K Consultants Ltd with the following monthly
remuneration.
UGX
Basic salary 500,000
Leave Pay (30 Days) 10% of basic salary
Accommodation-Rent 150,000
Transport Allowance 50,000
Bonus 90,000
Meals (4) 70,000
Medical Allowance 40,000
Additional Information:
1. Douglas failed to pay his bank loan, amounting to UGX. 900,000
including interest. His employer paid this loan on his behalf.

He was also extended a loan amounting to UGX. 700,000 by the

employers, at an interest of 2% on 1/07/2018. Assume Bank of Uganda
discount rate of 20%.

2. Inclusive in the medical allowance is medical expense reimbursed worth

UGX 31, 000 per month.

3. He uses a UGX .7, 000,000 company vehicle for 2 days a week for
private purposes. The employers charge him UGX.10, 000 per month
for this facility. The vehicle was acquired in 2017

4. The value relating to meals should be apportioned as follows:

(a) 1/4 Relates to Lunch provided in the company’s café during working
hours and opens to all workers.
(b)1/2 Relates to meals provided for domestic purposes.
(c) 1/4Relates to re-imbursement for meals expenses incurred by him
while on official duties of employment.

5. He bought used office chairs with a market value of UGX. 40,000 each
from his employers, paying a total of UGX. 70,000 for both chairs.
 6. He did not take his annual leave and instead compensated UGX .600,
000.

Required:
a) Compute Douglas’s annual taxable income and tax (PAYE) payable for the
year ending December 31, 2018 assuming he is a resident person.
b) What adjustments would you make if he were a non-resident person?

Question 4
Explain briefly the treatment of the following benefits in kind for Income Tax
purposes
a) Motor vehicle
b) Accommodation
c) Loan benefit
d) Transfer of property
e) Acquisition of shares
f) Meals and refreshments

Question 5
a) Define in details the term employment,
b) List the forms of employment incomes exempt from income tax.
c) Distinguish between contract of service and contract for services.
d) Explain the basic considerations of charging income tax

Question 6
(a) Define chargeable income and gross income.
(b) Nina has been promoted to a position of financial controller by Select Ltd.
Her appointment letter had the following details
She expects a basic salary of UGX. 150,000 per month, and the following incomes
and allowances: -
Allowances: UGX
a) Trading allowance 3,150,000 per year
b) Housing allowance 6,720,000 per year
c) Medical allowance 3,270,000 per year
d) Entertainment allowance 360,000 per year
Other Incomes:
a) Nina is entitled to medical services in the company s medical clinic to
the extent of UGX. 270,000 per month.
 b) She is entitled to a 30 days annual leave with pay or payment of UGX.
300,000 in lieu of leave.
c) She is also entitled to a company vehicle and a loan not exceeding
UGX. 2,000,000.
d) On appointment, Nina was awarded a gift (Rocking Chair) with a
market value of UGX. 270,000 and a Golden key holder worth UGX.
7,940.
Additional Information:
1. Nina took up the job on May 02, 2020 and she received the gifts on
appointment.
2. She has a part-time job as a Night Cafe Manager earning UGX. 210,000
per week. The amounts are taxed at source.
3. She used a UGX. 20,000,000 company vehicle 3 days a week for
private purposes, paying UGX.140, 000 per month for this facility.
However, the vehicle broke down at the end of 3rd week of May 2004.
4. Every month she spends UGX.420, 000 to pay her house-girl and UGX.
270,000 on domestic meals.
5. She acquired a loan worth UGX.1, 200,000 for one year from the
employers paying interest at 2% per annum. The discount rate as at
July 01, 2020 was 10%.
6. She enjoys services of 2 Shamba boys and a Guard each paid UGX.90,
000 per month. She pays UGX.25, 000 per month to the employers to
qualify for this scheme.
7. Bonus was paid to all managers on May 30, 2004 at a rate of 60% of the
basic salary; plus 40 BAT shares. Each share trades at UGX.9, 000 at
the Kampala Stock Exchange.
8. Its company policy to avail managers with meals both at work and their
residences. Meals provided to her for the month were worth UGX.120,
000. 40% of the meals were provided to her during working hours in
the company café.
9. Nina bought office glue worth UGX.20, 000 on May 03, 2004. She was
reimbursed UGX. 42,000.

Required:
Compute Nina’s annual taxable income and tax liability per month.