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 1 st 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, and2/3private use. (iii) During the year, the Company advanced Mr. Mambo Tshs. 3,000,000as 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. Mambos 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 fo rpayment 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 15 thJuly,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 121,950All 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) 7,200,000Other Benefits (Electricity, Gas, & Water) 681,950Salary from consultancy work (100,000 x 12)Note 1 1,200,000Amount received for accepting restriction 1,000,000Scholarship fees Ni Interest from CRDB (Final) Nil Loan Interest Benefit (Note 2) 360,000 Car Benefit (Note 3) 1,000,000 NSSF (Employer)Note 4Ni lNSSF (Employee) Note 4 360,000 11,801,950

Housing Benefit ( Note 5 ) 1,800,000 Total Taxable Income 13,601,950Note 1: This salary is from secondary employment and the rules regardingsecondary employments is:All secondary employers must withhold tax at the maximum individual rate, which is 30%. However, if employees total income is less than thetop band threshold (Tshs 8,640,000 per annum), the employee may applyto TRA Income Tax Department to have a lower rate applied to thesecondary 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%) 1,080,000Employee (5%) 360,000Total 1,440,000 Since it is less than the statutory amount of 2,400,00 all employeescontribution 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) = 1,800,000HB = 1,800,000 Question 6. AADU is a newly formed company carrying out fishing business. Duringthe first year (2008) of operation it made the following transactions:-(i) Received dividend from SHIDUSA Ltd a resident corporationamounting 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 KWENULtd, 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 CHUCHUMACompany Ltd a resident company.(iv) AADU has its office along Ali Hassan Mwinyi Road, the office wasunderutilized. The company decided to rent the front office to JumaBakari a shop businessman, who used it as a shop after paying TZS800,000 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 situatedat Changanyikeni-Dar es Salaam.(vi) Also the company received royalty from Madengu Ltd amounting toTZS 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 purchasedfor 2,000 in 1970. Three years prior to its sale, this land has beenused for as agricultural land.In addition to those transactions it earned business profit of TZS 100million. REQUIRED: Tax Laws in Tanzania Publication Number :: TLT-01 Kessy Juma :: http://www.taxation-tz.blogspot.com Page 5 By applying the relevant provisions of the ITA, 2004 compute theInvestment Income, Total Income and Tax Payable of the company for theyear ending 2008. Suggested Solution A thorough analysis of each item:(i) Dividend from SHIDUSA (6,000,000)

AADUs Investment Income (Nil)

Final Withholding S. 86 (1) (a)

Schd para 4 (b) (i)(iii) Dividend from CHUCHUMA Ltd (1,550,000)

AADUs Investment Income (Nil) SIDUSAs withholding tax (Nil) Exempted S. 54 (2)(ii) Dividend from KWENU Ltd (3,500,000) KWENU s withholding tax (10% x 1,550,000) AADUs Investment Income (Nil) Final Withholding S. 86 (1) (a) 1 st Schd para 4 (b) (i)(iv) Rent from Bakari (800,000) Final Withholding S. 86 (1) (a)

KWENUs withholding tax (5% x 3,500,000) 1 st

AADUs Investment Income (800,000) S. 9 (a)

J. Bakari s withholding tax ( 10% x 800,000) S. 82(1) & (2)(a)

Royalty from MADENGU Ltd (400,000)

AADUs Investment Income (400,000) S. 9(a)

MADENGU Tax credit to AADU (10% x 800,000) S. 87(v) Rent from Mr. James(400,000) s withholding tax ( 15% x 400,000) 1 st AADUs Investment Income (400,000) S. 9(a) Tax credit to AADU (15% x 400,000) Mr. James s withholding tax Not a withholding payment (vi) AADUs Investment Income (300mil S. 87(vii) Gain from sale of land at KUNDUCHI (300,000,000) Schd para 4 (b)

2,000 = 299,998,000)

Tax thereon (30%) 120,479,400Less: Tax credit available:Tax withheld from rent by Bakari (80,000)Tax withheld from royalty by MADENGU (60,000)Single instalment tax paid

AADU shall pay 10% x 299,998,000 as a single instalment ondisposal as required by S. 90(1)(a)

on sale of land (29,999,800) Tax payable by AADU 90,339,600Question 7. The following information refers to Peter for the tax year 2009.(1)

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 2008Dividend fro SHIDUSA NilDividend from KWENU NilDividend from CHUCHUMA NilRent from Bakari 800,000Rent from Mr. James 400,000Royalty from MADENGU 400,000Gain from sale of land at KUNDUCHI 299,998,000 Income from Investment 301,598,000 AADUs Business Income 100,000,000 AADUs Total Income 401,598,000

Peter owns two properties, which are let out. Both properties arefreehold houses, with the first property being let out furnished andthe second property being let out unfurnished.(2) The first property was let from 6 April 2009 to 31 August 2009 at amonthly 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 DomesticRevenue had accepted the amount as bad debt. The property was not re-let before 5 April 2010. During March 2010 Peter spent Tshs200,000/= 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 Tshs820,000/= payable in advance in every month. During July 2009Peter spent Tshs 200,000 on advertising for tenants. For the periodof 1 July 2009 to 1 April 2010 he paid loan interest of Tshs1,000,000/= in respect of a loan that was taken out to purchase thisproperty.(4)

Peter insured both of his rental properties at a total cost of Tshs660,000/= for the year ended 31 December 2009, and Tshs900,000/= for the year ended 31 December 2010. The insurance ispayable annually in advance.(5) Peter Sold his investment of 100 shares in Twiga Cement (Pty) Ltdcosting 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 yearfrom Twiga Cement where he owns 5% of all shares and withholdingtax of Tshs 100,000/= was deducted.(7) During the tax year 2009 Peter received bank interest of Tshs1,000,000/= 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 IndividualRent from properties (Final) NilBad Debt for the rent NilAdvertising expenditure for tenants NilLoan interest paid NilInsurance premium paid NilGain on sale of shares (21,025,260 12,228,500) 8,796,760Dividend received (Final) NilInterest earned from DECI (Final) Nil Taxable Investment Income 8,796,760 Question 8. The Union Bearing manufacturing company Ltd. (UBMC) is a firmmanufacturing UNIMOG trucks, bases and spare parts. It has been inTanzania as a branch of the Scania Ltd. of Kenya, for the past 20 years.UBMC has the following classes of depreciable assets pools with theirrespective tax written down values as at 1 st 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 fairorganized by the BET, which was held at Kurasini, Dar es Salaam. UBMCwon the 2 nd prize a valmet tractor, worth by then 3,600,000/=. Thistractor 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. TheUBMC 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. UBMCdecided 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 Directorsmet since 2000 to-date. It also purchased a new ship of 500 tons for 60mill/=. Both were used from the same date.A new boiler was purchased for 600,000/= for the glass manufacturingsection. A concrete foundation was constructed for 300,000/= to installthe 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 stolenat DSM harbour.The company was using tyres manufactured by the General Tyre (EA) Ltd.of Arusha Tanzania and radiators manufactured by the Afro

CoolingCompany Ltd. (ACCL) of Pugu Road DSM. Since these major sources of rawmaterials had financial problems, the UBMC advanced a 6mill/= loan tothe ACCL for purchase of plant and machinery; and 10mill/= loan toGeneral Tyre (EA) Ltd. for the purpose of purchasing a lorry to transport rubber from Iringa rubber farms. Part of the office furniture was soldduring December 2005 for 1.2 mill/=. While the purchaser took thefurniture during the same month, payment was to be made during March2006. Required: Calculate the depreciation allowance that UBMC is eligible toclaim from TRA according to the ITA, 2004 as at 31 st December 2005. Suggested Solution Tax Payer: Union Bearing Manufacturing Company Ltd. (UBMC) Year of Income: 2005 Computation: Depreciation Allowances

DEPRECIABLE ASSETS DEPRECIABLE ASSETS POOLSCLASS I (Tshs.) II (Tshs.) III (Tshs.) Tax Laws in Tanzania Publication Number :: TLT-01 Kessy Juma :: http://www.taxation-tz.blogspot.com Page 6 RATE A 37.5% 25% 12.5% TWDV 1 st Jan 2005 2,550,000 6,000,000 2,583,700 Additions: Air craft 50,000,000Ship 60,000,000Boiler (initial allowance) 2,550,000 116,000,000 2,583,700Incomings: P&M

(3,000,000) Ship (stolen) (20,000,000)Office furniture (1,200,000) DEP. BASE B 2,550,000 93,000,000 1,383,700DEPRECI. ALLOWANCESInitial 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 31 st 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) + 450,000Question 9. ABC Co. Ltd. commenced a business of assembling computer hardware on1 st

May 2005. The company acquired the following assets from XYZ, whichwas winding up its business in the URTon 30 th April 2005:a) A house, which was used by the XYZs director, for Tshs. 15,000,000. This was converted by ABC Co. Ltd. into a factory building afterincurring additional alterations cost of Tshs. 4,500,000.b) Factory building was acquired for Tshs. 24 million. One fifth of thisbuilding houses the head office. The office was air-conditioned with airconditioners worth Tshs. 2 million.c) Factory plant and machinery worth Tshs. 180 million. The tax writtendown value (TWDV) of the machinery was Tshs. 60 million in the vendors books. d) Two five-ton Lorries worth Tshs. 40 million in total. Their total TWDVwas Tshs. 32 million and their total book value (BV) was Tshs. 28million.e) A saloon car costing Tshs. 23 million. This car had a nil BV and TWDVin the books of the vending company. ABC Co. Ltd. used the car purelyfor 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 aTWDV of Tshs. 1,800,000/= and accumulated depreciation of Tshs.400,000.h) Office stationery and some operational guides were also purchased forTshs. 1,900,000/= After the commencement of the business, the following transactionstook place: i) One of the lorries was gutted by fire. Tshs. 8 million as insurancecompensation was received from National Insurance Corporation forthe loss.ii) On 1 st November 2005 an eight-ton trailer was purchase for Tshs. 38million.iii) BBA sold to ABC Co. Ltd. a godown building constructed for Tshs. 15million at Tshs. 175 million. It was used for storage of ABC Co. Ltd.finished products from 1 st January 2006.iv) The remaining lorry was exchanged for a new one on 1 st 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 ( initialallow.)

, AC40,000 2,000Saloon,OF, factorybuilding15,000 4,200 24,000Factory building 15,000Factory buildingalterations4,500 55,000 0 6,200 43,500 Additions: exchangedlorry,godown24,000 175,000Trailer 38,000 79,000 38,000 6,200 218,500Incomings: one lorry-fire (8,000)Exchangedlorry(14,000) DEP. BASE B 57,000 38,000 6,200 218,500DEPRE. ALLOWANNCESInitial 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 31 st 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 intransport business. Their business income statement for the year 2004,has the following results:Revenue 208,000,000Other income 400,000Total Income 208,400,000 Less: Operating ExpensesDepreciation allowance 10,800,000Fuel and Oils 90,000,000Spares, repairs & maintenance 14,000,000Licenses 300,000Interest 5,600,000Salaries and wages 26,000,000Stationery 800,000Tyres and tubes 55,500,000Miscellaneous 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 officevehicles 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

Tax Laws in Tanzania Publication Number :: TLT-01 Kessy Juma :: http://www.taxation-tz.blogspot.com Page 7 => 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. 5,000,000Interest on loan paid to Bush shs. 600,000(vii) Busheks personal account showed Tshs. 2,000,000/=, 3,000,000/= and 5,000,000/= as income received from Royalty, Dividend andRealization 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 year2000 and used for residence was sold to Mr. John in 2004.(viii) Asset acquisition during the year were:Land rover Tshs. 10,000,000/=1Tractor Tshs. 40,000,000/=2Pick up Tshs. 7,500,000/=1Land cruiser Tshs. 35,000,000/=1All these were used in the partnership business. The depreciation basis asat 31/12/2003 after pooling assets based on the Income Tax Act, 2004showed the following:Class I IIValue 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/lossProfit/(Loss) per accounts (2,600,000) ADD BACK: 10% fuel & oils 9,000,000 Partners salaries 16,000,000Depreciation allowance 10,800,000Interest on loan 600,000Weight Bridge fines 3,500,000Total tax paid 3,300,000Tip to Police 600,000 43,800,000Subtotal 41,200,000Deduct Interest on drawings (note v) 400,000Depreciation Note 1 79,187,500 79,587,500 Adjusted Distributable Loss (38,387,500)Note 1: Computation of Depreciation Allowance:

DEPRECIABLE ASSETS DEPRECIABLE ASSETS POOLSCLASS I (Tshs.) II (Tshs.)RATE A 37.5% 25% TWDV 1 Jan 2004 50,000,000 123,000,000 Additions: Land Rover 10,000,000Tractor 40,000,000Pick Up 7,500,000Land Cruiser 35,000,000 DEPRECIATION BASE B 102,500,000 163,000,000DEPRECIATION ALLOWANCES 38,437,500 40,750,000TWDV 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 16,000,000Fuel & Oils 3,000,000 3,000,000 3,000,000 9,000,000Interest on loan 600,000 - - 600,000Inter 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 -6,195,833Question 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 controllingshares 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 aresidence that realizes a gain of more than 15,000,000,

An individuals 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 financecompany for tax purposes? Suggested Solution Investment company a company whose activities consists mainly in themaking and holding of investments whether in land and buildings for thepurpose of receiving rents or in securities for the purpose of receivinginterest or dividend and a major part of whose income is derived therefrom.Finance company a company whose activities consists mainly in dealingin 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 andinvestments are its stock in trade, to be bought and sold. Finance companyalso 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 asfollows: Tshs Sales 273,970,710Cost of sales 150,000,355

Gross Profit 123,970,355 Operating Expenses 27,000,000Other 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 rawmaterials,(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 Tshs821,000,(v) Penalties for VAT Tshs 3,500,000,(vi) Managing Directors personal visitors entertainment expenses Tshs3,880,000,(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 Tshs3,543,123,(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 terminatedemployees Tshs 627,000. Tax Laws in Tanzania Publication Number :: TLT-01 Kessy Juma :: http://www.taxation-tz.blogspot.com Page 8 Assume that you are in charge of one of the Audit Teams at the LargeTaxpayers Department and the Commissioner for Large Taxpayers hasassigned you the tax file of KK Ltd.REQUIRED:Apply the provisions of the Income Tax Act 2004 to determine the taxableincome 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 4,733,000Penalties for VAT 3,500,000

MDs personal visitors entertainment expenses 3,880,000Political parties contributions 1,007,450Treasury Loan used by Director 3,543,123Construction cost of new laboratory 13,520,620Salaries for future services 6,577,000 Adjusted Taxable Income 36,975,329Tax thereon (30%) 9,928,599Question 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 loanmeans a loan under which payments by the borrower represent in part apayment of interest and in part a repayment of capital where the interest part is calculated on capital outstanding at the time of each payment andthe 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 Sindikawith profit sharing ratios of 45%, 15% and 40% respectively. Thefollowing details were obtained in their Financial Statements as at 31 st December 2005: Tshs Tshs Gross Profit 173,900,000

Interest on Sindikas overdrawn 7,750,000Profit on sale of machine 2,210,000 183,860,000Operating Expenses: Salaries and Wages 7,300,000Sundry expenses 7,900,000Office rent 725,000Medical expenses 7,250,000Accounting fees 7,650,000Charity and donations 7,625,000Entertainment 7,500,000Salaries to partners (equally) 50,890,000 96,840,000Interest on share Capital: SindikaSindi 745,000Sinda 755,000 1,500,000Interest on Loan: Sinda 725,000Sindi 715,000Sindika Nil 1,440,000Depreciation: Factory Building 7,500,000Processing Machinery 7,450,000Saloon car 7,200,000 22,150,000Net 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 partnersand their families equally; donation was paid to Rombo OrphansCenter,3. Entertainment includes Tshs 230,000 in respect of entertainment toSindika,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 foracquiring patent right that has been put into use from 1 st January2005 to manufacture car chases Tshs 230,000. The useful life of theright is 5 years and 8 months,6. Tshs 725,000 had been paid to Tax Consultant in respect of an appealmade against assessment by TRA,7. In February 2005, there were expenses of three-fold: MotorExpenses Tshs 850,000, Bank Interest on Loan Tshs 125,000 andSundry Expenses Tshs 190,000. However, in September 2004 therewas a capitalized interest of Tshs 6,000,000,8. In 31

st December 2004, owned the factory worth Tshs 700,000,000;Machinery Tshs 10,000,000 and Motor Vehicle Tshs 600,000,000where as accumulated depreciation for a factory was tshs800,000,000; Machinery Tshs 13,640,000 and Motor vehicle Tshs7,700,000. [The depreciation rate is 15% on reducing balancemethod]. REQUIRED: Compute adjusted partnership income and partners income for the year ending 31 st December 2005.[Note: The profit on sale of Machinery is from Sindika domestic tailoringmachine and interest on overdraft is not related to business]. Suggested Solution KIBWE TRADERS ADJUSTED PARTNERSHIP INCOME STATEMENT FORTHE YEAR ENDED 31 ST DECEMBER 2005. TSHS TSHS Profit as per accounts 61,930,000 Add: Non Allowable Deductions

Charity & Donations 7,625,000Entertainment to Sindika 230,000Legal fee Sindi 760,000Patent right 230,000Depreciation 22,150,000Salaries to partners 50,890,000Interest on share capital 1,500,000Interest on loan 1,440,000Medical expenses 3,625,000 88,450,000150,380,000Less: Allowable Deductions Interest on overdraft 7,750,000Profit on sale of machine 2,210,000Depreciation Note 1 193,414,583 203,374,583 Adjusted partnership income 52,994,583Note:Class II: Cost [10,000,000+13,640,000+600,000,000+7,700,000] 631,340,000Depreciation (2004) 25% 157,835,000WDV (31 st December 2004) 473,505,000 Depreciation (2005)

25% 118,376,250WDV (31 st December 2005) 355,128,750Class VI: Cost [800,000,000+700,000,000] 1,500,000,000Depreciation 5% 75,000,000 Class VII: Cost 230,000Depreciation (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 1,208,333Entertainment - - 230,000Salaries 16,963,333 16,963,333 16,963,333Interest 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. Tax Laws in Tanzania Publication Number :: TLT-01 Kessy Juma :: http://www.taxation-tz.blogspot.com Page 9

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 theimposition of comparable taxes in two (or more) states on the sametaxpayer in respect of the same subject matter and for identical oroverlapping periods.(b) Double taxation can occur whenever any of the following threephenomena happen:(i) Concurrent full liability to tax (inconsistent residency rules orDual Residence Clash).(ii)

Conflict of residency against source or situs (Source VsResidence Clash). One state may tax a person on his worldwideincome because he is resident (i.e. full liability to tax) whileanother state may tax the same person because he derivesincome 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 twostates. In this case, two or more countries claim sourcetaxingrights e.g. a company incorporated in country A having apermanent establishment in country B which derives income incountry C. Both B and C will have limited liability to tax theincome.(c) International double taxation can be eliminated by:(i) Exemption Method Under this method, the investors country of residence exempts from taxation income from foreign sources. The exemption maybe integral or may occur with progression. In the former case,the exempted income is not taken into account in determiningthe tax rate to be applied on the domestic income. In the latercase the exempted income is actually taken into account indetermining the applicable tax rate.(ii) Credit Method The investors cou

ntry of residence treats the foreign tax,within certain statutory limitations, as if it were a tax paid toitself. 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 theUnited Republic of Tanzania. Foreign Permanent Establishment means all permanent establishments of an individual, partnership, trust or corporation that are situated in anyone 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 goodgovernance and transparency,(iii) Enhancing the competitiveness of domestic businesses,(iv) Promoting domestic compliance with respect to income arisingoutside the country,(v) Allowing for the exchange of information between countries andhence providing a country with means of accessing informationotherwise not available. Question 19. The Income Tax Act 2004 specifies a certain statutory time limit formaking adjustment on assessments by the commissioner of Income Tax. Suggested Solution Section 96(2) and (3) provides a time limit for the commissioner forIncome Tax (CIT) to make adjustment on assessment as follows:(i) In case of a self assessment (under S.94) or jeopardy assessment, theCIT may adjust assessment within three years after the date for filingthe return of income which relates to such assessment,(ii) In case of best judgment assessment (under S.95(2)), the CIT mayadjust the date on which the notice of assessment is served on theperson 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 onassessment at any time,(iv)

For inaccurate assessment by reason of fraud by or on behalf of theassessed person, adjustment on assessment can be raised at any timeby the CIT. Question 20. Timago Co. Ltd is engaged in manufacturing of different types of leatherbags and cases. Its total number of employees is 100 for which thecompany paid 15,540,000 to TRA as PAYE collections for the periodbeginning January 2006 to June 2006. The company filed the statement of withholding taxes for th period on 30 th 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 theperiod beginning January to June 2006 is: 30 th June 2006

.The date on which Timago filed the statement: 30 th 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% = 259,000Compare 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 asea transport business. During the year of income 2006, the companycarried out the following transactions:(i) Received Tshs 400 million for carriage of cargo from Tanzania toChina,(ii) Received Tshs 100 million for transport of passengers from Tanzaniato South Africa.(iii) Received Tshs 1,000 million for transport of cargo from China toUnited Kingdom.(iv) Received Tshs 300 million for rental of containers for carrying cargofrom 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 rulesapplicable are those provide by section 90(3) and (4). Taxable Income of Yuhang Ltd: Carriage of cargo to China 400 milTransportation of passengers to S.A 100 milTransportation of cargo [China to U.K] NilRent of containers to India 300 mil 800 mil

Tax Laws in Tanzania Publication Number :: TLT-01 Kessy Juma :: http://www.taxation-tz.blogspot.com Page 10 Single Installment tax payable thereon= 5% x 800 mil= 40 milAlso the company is entitled to a tax credit for the year of income in anamount of single installment as above. Question 22. Define a Charitable Organization as per section 64 (8) of the Income TaxAct 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 forrelief of poverty or distress of the public or the provision of generalpublic health, education, water, or road construction ormaintenance and(ii) The entity has been issued with a ruling from the commissionerstating that it is a charitable organization. Question 23. What are the conditions to be fulfilled by a taxpayer with regard to refundof 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 thecommissioner to apply to the commissioner in writing within three yearsof the later of:(i) The end of the year of income during which the events occurredthat 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 commencedits business on 1 st February 2005 as a retailer of audio-visual products inTanzania. It has drawn up its first accounts to 31 st December 2005, thedraft of which together with the additional information was as follows:Notes 000 Tshs. 000 Tshs. Sales1 950,000Dividends 2 5,000Interest income 3 12,000Contractual penalties 4 5,000 972,000

Expenses: Directors fees 5 320,000Salaries 300,000Interest expenses 6 80,000Rent and rates 220,000Legal and professional fees 7 20,000Contributions to retirement fund 8 15,000Depreciation 9 120,000Travelling and entertainment 22,000Provisions 10 28,000Insurance 18,000Sundries 11 10,000 1,153,000Loss for the year (181,000) Additional notes: 1. Sales figure includes Tshs. 1,000,000 for sale of furniture which wasused by the company.2. The company had bought some shares from City Stock Exchange.These were shares of Sungura Cement Company which distributeddividends 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 thecompany had extended a personal loan. The Director used the loanto acquire a building in Kenya.4. The amount was received as a result of a business contract which theother party breached it.5. Directors fees were paid to the following persons:-Mr. A. 200,000,000Mrs. A (wife of Mr. A) 50,000,000 Mr. B. (Mr. As brother)

70,000,000320,000,0006.Interest paid to bank on overdraft 20,000,000Finance charge on hire purchase agreements 50,000,000Interest on failure to pay previous years Vat 10,000,00080,000,0007. Audit fees 10,000,000Legal fees for staff contracts and retirement funds 6,000,000Amount paid to Tender Board members to facilitatewinning a bid4,000,00020,000,0008. Employees contributions 7,500,000 Employers contributions 7,500,00015,000,000The contributions were made to an approved retirement fund.9. The company acquired the following assets:On 15 th February 2005 Furniture and equipment 100,000,000On 15-02-2005 Computers and accessories 300,000,000On 1 st September 2005

Motor car (station wagon) 200,000,000The computers were acquired on hire purchase terms for 12 months.The down payment of Tshs. 120,000,000 was made on 15 th February2005 and the first monthly instalment of Tshs. 20,000,000 was due on15 th February 2005 and the first monthly instalment of Tshs.20,000,000 was due on 15 th March 2005. The cash price of thecomputers was Tshs. 300,000,000.10. Provision for debtors (specific) 11,000,000Provision repairs (estimated) 8,000,000Provision for stock obsolescence 9,000,00028,000,00011. Sundries included a traffic fine of Tshs. 3,500,000. The balance wasgeneral 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 NilPenalties (VAT) 10,000,000Tender Board Expenses 4,000,000Employees Contributions 7,500,000Depreciation 120,000,000Provisions 28,000,000Traffic fine 3,500,000 173,000,000 8,000,000Deduct: Allowable Deductions: Sales of furniture 1,000,000Dividends (FWP) 5,000,000Interest Income NilBusiness contract penalties NilDepreciation 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 Total37.5% 12.5% Computers 300,000,000Motor cars 15,000,000Furniture & Equipments 100,000,000 315,000,000 100,000,000

Tax Laws in Tanzania Publication Number :: TLT-01 Kessy Juma :: http://www.taxation-tz.blogspot.com Page 11 Less: IncomingsFurniture (1,000,000) Depreciation Basis 315,000,000 99,000,000 Depreciation allowance (118,125,000) (12,375,000) 130,500,000WDV (31 st Dec 2005) 196,875,000 86,625,000Question 25. The Mwanamboka Company Ltd is a parent company that is based inTanzania. It has two foreign subsidiaries; one in Zambia namedZAMAFRICA Ltd having 50% shares and another in South Africa namedSAHI having 60% shares. The Zambian company has invested in a SAHIwhich has similar business with that of the parent company,Mwanamboka Company Ltd.SAHI paid an interest of USD 150,000 to ZAMAFRICA. ZAMAFRICA doesnot tax interest but tax dividends at a rate of 5%. The ZAMAFRICA Ltdpaid dividends to the parent company to the tune of USD 120,000 andrealized a business profit of USD 1,100,000 during the tax year of income2005. REQUIRED: (i)

Calculate the unallocated income and taxable income for the ZAMAFRICA Ltdthat is based in Zambia. (ii) Determine the tax payable. Suggested Solution (i) Determination of unallocated income and total taxable incomeTotal Income S. 74(2) USD USD Interest 150,000Business profit 1,100,000 1,250,000 Less: Distributions S. 74 (1) (120,000) Unallocated Income 1,130,000 Companys 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 = 69,156Business 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% = 172,890Less: Tax on dividend for foreign company(120,000 x 5%) 6,000Total tax payable 166,890Foreign tax relief (S.77(1)) NilNet tax payable 166,890==================================================== ========================================================== ========================================================== ========================================================== ==========This publication has been prepared by Juma Kessy B. Com Hons (Accounting), UDSMLet him be aware of any errors in this edition and send corrective suggestions, if any.