INCOME TAX REVISION QUESTIONS

Question 1
Amazing Grace Ltd deals in importation and wholesale of hardware materials from
China. The company is located on Luwum Street, Kampala. The company's statement of
comprehensive income for the period ended 31 March 2020 was as below: Amounts in
shs”000”
Turnover 330,000
Cost of sales (170,000)
Gross profit 160,000
Salaries and wages 15,000
Postage and telephone 2,340
Vehicle running costs 16,989
Legal and professional fees 9,000
Office rental 12,000
Repairs and maintenance 3,800
Insurance & bonds 3,000
Depreciation 8,354
Income tax 2,000
Stationery 2,700
Amortisation of leasehold land 1,900
Licenses, permits and subscriptions 235
Advertising and marketing 1,590
Water and electricity 7,000
Travel 32,400
Unrealized foreign exchange loss 22,000
Total operating expenses (140,308)

Profit before tax 19,692

Additional information:
i. Legal fees include Shs 5 million incurred on purchasing land.
ii. Travel costs include Shs 20 million incurred on the director's wife during a holiday in
Sweden.

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 iii. The company paid advance corporation tax of Shs 2 million which was expensed in
the statement of comprehensive income.
iv. The company purchased the following assets during the year.
 Three trucks of less than 7 tons capacity each at Shs
32million.
 Two laptop computers both at Shs 3.5 million,  Furniture
and fittings at Shs 3 million.
Assume that this was the first year of business.
Required:
a. Compute the capital allowances due to Amazing Grace Ltd.
b. Compute the tax due at year-end for the company after setting off any available tax
credits.

Question 2
The following is a statement of comprehensive income for Bogere Supermarket Ltd
(BSL) located in Iganga for the year ended 31 March 2019:
Shs '000’ Shs '000’
Sale of merchandise 45,757
Cost of sales (10,527)
Gross profit 35,230
Other income 1,495
Total income 36,725
Expenditure:
Administration fees paid 2,225
Advertising 200
Amortization of operating leases 321
Audit fees 1,200
Provision for bad debts 4,000
Bank charges 100
Penalties 600
Depreciation 4,589

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 Donations 300
Electricity and water 5,000
Motor vehicle expenses 5,678
Professional services and legal expenses 1,000
Rent paid 2,000
Repairs and maintenance 1,689
Staff costs 3,000
Capital assets 4,000 (35,902)

Trading profit 823

Additional information;
i. Fixed assets which were purchased during the year included:

• 2 fridges each costing Shs 1.5 million.

• A van with a seating capacity of 28 passengers at a cost of Shs 26 million.
• A computer of Shs 4 million.
• A piece of land at Bunga, which is yet to be, developed at Shs 50 million.
ii. The company supplied goods to the Ministry of Health and a withholding tax of Shs 3
million was deducted. The corresponding tax credit certificate was obtained.
iii. Included in legal and professional fees are lawyers’ fees of Shs 400,000 for working on the
legal affairs of the director’s friend.
iv. Donation was made to a staff member’s wedding.
v. Provisions for bad debts are general.
Required:
a. Compute the capital allowances due to the supermarket. Assume that there was no brought
down tax written down values.
b. Compute the tax payable and offset any credits available to the supermarket

Question 3
Spirits Distillers Ltd (SDL) is a resident company in Uganda located in Mukono municipality.
It deals in the distillation and distribution of spirits across the country. The company’s
statement of comprehensive income for the year ended 31 December 2018 is provided below:
Notes Shs ‘000’
Turnover 16,200,500

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Cost of sales (8,500,000)
Gross profit 7,700,500
Other income 1 89,000
Total operating income 7,789,500
Operating costs:

Distribution cost 2 (1,800,600)

Administration costs 3 (2,409,000)
Finance cost 4 (156,000)
Profit before tax 3,423,900

Additional information
1. Other income:
Shs ‘000’
 Interest earned on Treasury bills net of related expenses 65,200

 Unrealized gains on fixed deposit with Standard Bank 21,600

 Gains on disposal of distribution truck in Class II 2,200

89,000
2. Distribution costs include the following among other items:

 Bribes for overloaded distribution trucks Shs. 26,500,000

 Billboards for marketing signage Shs. 156,400,000

3. Administration costs include the following among other items:

• Depreciation Shs. 165,400,000

• Specific bad and doubtful debts on trade receivables Shs. 25,400,000
• Repairs to the CEO’s residence not included in his taxable benefits Shs. 6,300,000
• Dividends paid Shs. 578,900,000
• Life assurance for employees Shs. 96,700,000
• Loss on disposal of CEO’s old vehicle Shs. 5,600,000
• Cost of acquisition of distribution trucks less than 7tonnes Shs. 246,000,000
4. Finance cost:

 Finance cost of Shs 156 million is interest paid on a loan extended to the directors for personal
use and this was not taxed as part of directors’ remuneration
5. Details relating to non-current assets:

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 • Written down values 1 January 2018 Shs. ‘000
• Class I 189,000
• Class II 194,000
• Class III 256,000

Additions to depreciable assets during the year: Shs. ‘000

 Computers 15,500
 Furniture 25,600

 Mercedes Benz for CEO 180,000

6. Industrial buildings details

• Qualifying cost net of building acquired in 2006 Shs. 980,700,000

• Cost of new industrial building brought to into use on 1 July 2018 Shs. 3,080,000,000  Cost
of adjacent land Shs. 200,000,000
7. Others:

• Disposal of truck in Class II Shs. 36,500,000

• Disposal of CEO’s old vehicle, which had cost Shs 130 million in 2015 Shs. 28,900,000
• Provisional tax paid Shs. 689,000,000
• Withholding tax paid (Tax Transaction Certificates obtained) Shs. 64,300,000

Required:
Compute the chargeable income and the tax payable/Claimable by SDL for the year ended 31
December 2018.

Question 4
Mufuruki Uganda Ltd is a company registered in Uganda and has been in business since 1 July 1989.
Its main business is the growing of sugarcane and the processing of sugar. The company is located in
Masindi district in western Uganda. During the year ended 30 June 2018, the company also
embarked on the business of growing flowers specializing in roses and carnations.
The statement of comprehensive income for the year ended 30 June 2018 indicated the following:
Revenue: Shs million Shs
million
Sugar sales 80,000
Molasses sales 6,000

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Flower sales (note 1) 4,000 90,000
Other income (note 2) 2,000
Total income 92,000
Expenses:

Cost of cane from out growers 10,000

Salaries and wages 12,000
Management fees (note 3) 8,000
Maintenance costs (note 4) 15,000
Professional fees 2,000
Foreign exchange loss (note 5) 7,000
Other expenses (note 6) 6,000 (60,000)
Profit before finance costs and depreciation 32,000
Depreciation 8,000
Finance costs 125 (8,125)

Profit before tax 23,875

Notes to the financial statements:
1. The company constructed a new greenhouse specifically for the flower growing business. The
total cost for the structure was Shs. 500 million and it was put to use on 1 July 2017.
2. Other income includes bank interest earned on fixed deposit accounts in Stanbic Bank and
Barclays Bank. Withholding tax of Shs 300 million was deducted at source.
3. The management fees were paid to Agro Management International, which is located in the
United Kingdom.
4. Maintenance costs include the following: Shs million
Machine and vehicle repairs 3,000
Fuel and lubricants 5,640
A new crushing machine to replace one that was worn out 560
Painting of all the premises 800
New store/shade for freshly cut cane (first used 1 January 2018) 5,000
15,000
5. Exchange losses include the following: Shs. Million
Realized exchange losses 3,800
Unrealized exchange losses 3,200

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 7,000
6. Included in other expenses are the following amounts: Shs. Million
Contributions to Bunyoro Kingdom for Empango celebrations 150
Funeral expenses/contributions to staff 20

Donations to Bunyoro Women’s group 10

Billboards for advertising 2,000
Other business related costs 3,820
6,000
7. Additions to depreciable assets during the year were: Shs. Million
Factory machinery 260
Tractors 140
Computer equipment 50
Motor vehicle (Toyota Prado) 120
Furniture 50
620
Apart from the construction of the store mentioned in note 4 above, no new building was
constructed.
8. The tax written down values of the company’s assets as at 1 July 2017 were:
Shs million
Class I 38
Class II 380
Class III 10,790
9. Industrial building allowance 4,300 Million
10. The annual allowance on the existing factory buildings is Shs 300 million.
11. 5% of the company’s full time employees are persons with recognized disabilities.
12. The provisional tax paid for the year ended 30 June 2018 was Shs 9 billion. The company had
a loss brought forward from the year ended 30 June 2017 of Shs 5,480 million.
Required:
Compute the tax payable/claimable by Mufuruki Uganda Ltd for the year ended 30 June 2018.

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Question 5
Mudaachi, Rukia and Kate are business partners providing consultancy services in developing IT
systems across East Africa. Their accounting period commences on 1 st July of every year and
ends on 30th June of the following year.

The following information relating to the partnership activities as at 30 th June 2021 has been
availed:

i. Opening balance on capital accounts as at 1 July 2020:

• Mudaachi Shs36 million

• Rukia Shs30 million
• Kato Shs23million
ii. The profit-sharing ratio among the partners is 4:3:2, respectively.
iii. Interest payable on capital is 15% on the opening balance at the beginning of each year. iv.
Partners pay interest on drawings made from the partnership business at 12%.
iv. Partners are paid salaries as may be agreed from time to time.
Profit for the year of shs72 million was arrived at after charging the following;

• Depreciation of non-current assets of shs7.5 million  Interest on capital and partners’

salaries.
• Rent for staff of shs.15 million including Mudaachi’s rent of Shs5.2 million
• Partners’ drawings for the year charged to the statement of profit or loss and other
comprehensive income comprised Shs 3million by Mudaachi and Shs 2million by Rukia.

• Partners’ salaries:

Mudaachi Shs6.2 million

Rukia Shs5.0 million
Kato Shs4.3 million

The tax written down value balance brought forward for non-current assets were as follows;

• Class I shs25 million

• Class IV shs8.1 million

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 • Additions to non-current assets comprised of land at a cost of shs120 million and
furniture at a cost of shs2 million.

Required:
Compute the;
a) Partners’ distributable profits for the year ended 30th June 2021

b) Taxable profits attributable to each partner

c) Tax liability of each partner.

Question 6.
Chesang is an employee of Musop Publishers Ltd (a taxable employer) working as a finance
manager. The following are the entitlements due to Chesang as per her employment contract for the
year of income ended 31 December 2018:
 Basic salary Shs 4 million per month
 Travel allowance Shs 500,000 per month
 Housing allowance Shs 650,000 per month
 Entertainment allowance Shs 1,050,000 per annum
 Medical allowance Shs 5 million per annum

Additional information:
• Chesang is availed a company car, a Land Cruiser Prado for use on both private and
official duties. Chesang makes no contribution in respect of the private use of the car. The
cost of the car when first availed to Chesang in 2016 was Shs 57 million.
• On 24 September, 2018, the car was taken to the garage for repairs and Chesang
incurred repair expenses amounting to Shs 250,000. The company reimbursed this
expenditure to Chesang later on.
• The company pays life insurance premium for Chesang of Shs 6 million per annum.
• The company pays school fees for Chesang’s children amounting to Shs 3 million per
annum.
• Chesang is provided with a shamba boy and a watchman, who are on the company’s
payroll and receive Shs 130,000 and 200,000 respectively per month.
• Electricity and water bills of Shs 145,000 per month are paid for by the company. The
company deducts Shs 60,000 from her monthly salary in respect of these utilities.

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 • The company operates a loan scheme for staff. Chesang took a loan of Shs 21 million
on 1 January 2018 at a rate of interest of 11% per annum. The rate of interest ruling in the
market was 19% per annum and the statutory rate was 9% per annum for the year ended 31
December 2018. Required:
a) Compute Chesang’s chargeable employment income and the taxes payable for the year ended
31 December 2018.
b) Explain circumstances under which income earned may be excluded from somebody’s
chargeable employment income.

Question 7.
Zulu, a South African citizen, is employed by Zambi Uganda Limited as company secretary,
effective 1 July 2016. He was resident in Uganda for a period of 172 days. The terms of his
employment contract include the following:
i) Monthly salary, Shs 8 million per month.
ii) Provision of accommodation in a rented house at Buziga at Shs 1.5 million per month.
iii) A bonus of Shs 6 million per annum.
iv) Provision of a Toyota Prado motor vehicle by the company which was bought on 1 March
2017 at Shs 60 million.
v) Medical insurance to AAF of Shs 1 million per annum for self and immediate family
members.
vi) The company pays for his subscription to the Institute of Corporate Governance up to a limit
of Shs 70,000 per annum.
vii) Loan facilities from the company not exceeding Shs 30 million at an interest rate of 7% per
annum. The loan would be payable in 3 years’ time.
During the year the following transactions took place:
• The company paid for his subscription to the Institute of Corporate Governance Shs
900,000.
• The company paid for his accommodation at Shs 1.5 million per month.
• Zulu took a furniture loan of Shs 25 million on 1 April 2017.
• By 30 June 2017, Zulu had privately used the car during that year for approximately
100 days. He had also paid Shs 500,000 towards expenses related to the car.
• The company paid school fees for his children Shs 4.5 million.
• Utility bills to the tune of Shs 300,000 per month were paid for him by the company.
• Zulu received alimony from his ex-wife of Shs 20 million on 31 May 2017.

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 Note: Assume that the statutory rate of interest as at 1 July 2016 was 10%.

Required:
a) Compute Zulu’s chargeable employment income for the year ended 30 June 2017. Comment
on any information not used.
b) Compute the tax liability for the period ended 30 June 2017.
c) Give any three circumstances under which income is exempt from tax as provided for in the
Income Tax Act.

Question 8
(a)Tax payers registered with URA for any type of tax have an obligation to submit a return for the tax
period defined by the respective tax law.
Required; explain the following in relation to filing income tax returns
(i) Persons eligible to file returns
(ii) Persons not required to file returns
(b) Mark, Martin and Maria are business partners providing accountancy services in Masaka city with a
profit sharing ratio 4:3:2 respectively. Their accounting period commences on 1 July each year and
ends on 30 June of the following year. The following information relates to the partnership activities
as at 30th June 2020 has been provided.
1. Partner’s Capital accounts
1st July 2019 30th June 2020
Mark Shs 45,000,000 Shs 43,000,000
Martin Shs 40,000,000 Shs 37,000,000
Maria Shs 36,000,000 Shs 33,000,000
2. Interest payable on capital is 15% on the opening balance at the beginning of each year.
3. Partners pay interest of 10% on drawings made from the partnership business during the year.
4. Partner’s salaries during the year.
Mark Shs 12,000,000
Martin Shs 8,300,000
Maria Shs 5,500,000

5. Profit for the period was Shs 85,000,000 which was arrived at after charging the following;
(i) Depreciation of non-current assets of Shs 19,800,000
(ii) Interest on capital and partner’s salaries
(iii) Partners’ drawings for the year of Shs 8,000,000 by Mark and Shs 5,000,000 by
Martin.
(iv)Tax allowable administration expenses of Shs 32,000,000
6. The tax written values for non-current assets as at 1 July 2019 were as follows
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 Class I Shs 33,200,000
Class III Shs 22,000,000
Additions to non-current assets comprised land at cost of Shs 150,000,000 and furniture at a cost of
Shs 5,000,000. Three computers were disposed at Shs 850,000 each.
7. Partnership assessed loss carried forward of Shs 11,350,000
8. Partners’ PAYE paid during the year
Mark Shs 9,840,000
Martin Shs 7,500,000
Maria Shs 5,200,000
Required;
Compute the following;
(i) Partnership’s chargeable income for the year ended 30th June 2020.
(ii) Taxable profits attributable to each partner.
(iii) Tax liability of each partner.

Question 9.
a) Explain any FOUR categories of incomes specified by the income tax Act as taxable business
income.
b) Roxanne earns a living by letting out houses in various locations and holding shares in public
listed companies. During the year ended 31st December 2019, her profit and loss account showed a
profit of Shs 76,500,000 after charging the following expenses
 Security costs Shs 4,800,000
 Maintenance costs Shs 5,000,000
 Provisional tax Shs 13,200,000
 Salaries to her domestic workers Shs 4,500,000
 Electricity and water bills of Shs 3,600,000 for which only 60% relate to consumption by the
tenants and the balance is for her residence
Additional information
 Incomes in the profit and loss account included dividends of Shs 2,540,000 whose tax is
withheld at source.
 Kuteesa one of her tenants made advance payment of Shs 1,500,000 for the month of January
2020. This was credited in the profit and loss account for the period.
Required;
Compute Roxanne’s tax obligation for the year ended 31 December 2019.

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c) Explain to Roxanne the following;
(i) Tax implication of the tax withheld at source on her dividend income.
(ii) Types of income tax returns and the due date dates for each.

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