THE PUBLIC ACCOUNTANTS EXAMINATIONS BOARD

A Committee of the Council of ICPAU

CPA (U) EXAMINATIONS

LEVEL ONE

TAXATION – PAPER 6

FRIDAY 19 MARCH, 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 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.

 2021 Public Accountants Examinations Board

 Taxation – Paper 6

SECTION B
Attempt four of the five questions in this section
Question 2
Donkey Company Limited (DCL) is an outdoor advertising company registered in
Uganda. DCL has billboards at Entebbe airport, in Kampala, and throughout the
major towns of Uganda with its head office in Kampala. Below is an extract of
DCL’s statement of profit or loss and other comprehensive income for the period
ended 31 December, 2020:
Notes Shs ‘000’ Shs ‘000’
Revenue 1 404,290
Cost of sales (33,372)
Gross profit 370,918
Other income:
Bad debt recovered 2 16,500
Promotional materials 21,300
Gala 68,000 105,800
Total income 476,718
Operating expenses 3 (85,630)
Administrative expenses 4 (233,574)
Distribution expenses (25,000)
Total expenses (344,204)
Operating profit 132,514
Net finance cost 5 (16,250)
Profit before tax 116,264
Notes:
1. Included in DCL’s income is advance payment of Shs 33 million for a
contract which DCL has only executed 50% of the value, and Shs 11.5
million received as interest on a government bond.
2. Bad debt recovered is for an amount written off in the previous year but
was not considered in the computation of chargeable income for the year.
3. Operating expenses include:
(a) Cost of installing a new electronic billboard software of Shs 7.8
million with an estimated useful life of 5 years.
(b) Shs 6 million paid to a local artisan without a tax identification
number (TIN) for the fabrication of billboard stands in Masaka.
(c) Shs 9 million for branded staff shirts specifically designed as
corporate-wear.

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 Taxation – Paper 6

4. Administrative costs include:

(a) The cost of meals provided to all staff at the head office in Kampala
of Shs 18 million.
(b) Replacement of furniture in the production studio of Shs 11.7
million.
(c) Depreciation of Shs 26 million.
5. Net finance cost relate to interest paid on a bank loan used for the
acquisition of artificial intelligence advertising software.
6. During the year, DCL acquired the following depreciable assets:
(a) 5 billboards each at Shs 9 million; 2 in Entebbe, 1 in Kampala, and 2
in Masaka.
(b) 6 new high powered computers for advert production placed in
Kampala each at Shs 12 million and a heavy duty offset colored
printer for Shs 21 million.
(c) 1 self-loader crane truck of Shs 72 million.
7. The opening written down values on 1 January, 2020 were as follows:
Shs ‘000’
Class I 101,000
Class II 154,000
Class III 115,000
Class IV 216,000
Required:
(a) Determine DCL’s chargeable income and tax liability for the period ended
31 December, 2020.
(14 marks)
(b) In accordance with the Income Tax Act Cap 340 explain the following
terms:
(i) a person (2 marks)
(ii) year of income (2 marks)
(iii) chargeable income (2 marks)
(Total 20 marks)

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 Taxation – Paper 6

Question 3
Najib Bashar has been working with Pesa Commercial Bank (PCB) for the past 15
years. On 1 January, 2021, he was promoted to the position of regional branch
manager and posted to Arua City. The following were his terms of promotion:
1. A 15% increment to his previous gross annual salary of Shs 96 million and
Shs 500,000 monthly lunch allowance provided for all managers.
2. Subscription to a club of his choice. He chose Semyekozo Social Club of
bankers for which the bank paid his annual subscription of Shs 1.2 million.
3. In Arua, he was offered a bank house with a monthly market rental value
of Shs 800,000 and boys’ quarters valued at Shs 150,000 per month.
4. As part of this promotion, Najib was given a double-cabin pickup which
was procured by the bank in 2017 at Shs 80 million. On 1 January, 2021,
the vehicle had a market value of Shs 35 million.
5. During his transfer, Najib received Shs 5 million to cater for his transport
and disturbance allowance.
6. Najib received an interest free salary advance of Shs 6 million in January,
2021 to pay for his children’s school fees. The statutory interest rate at
the time was 15% per annum.
7. The bank offers group medical insurance for staff and their immediate
family members, Najib is entitled to Shs 9 million per year.
Required:
(a) Compute Najib’s chargeable income and tax liability for the month of
January, 2021.
(16 marks)
(b) In accordance with the Income Tax Act Cap 340 explain the obligations
and rights of an employee.
(4 marks)
(Total 20 marks)

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 Taxation – Paper 6

Question 4
Akard Commercial Enterprise (ACE) is a Ugandan company dealing in the
importation, distribution, and exportation of textiles, specialised chemicals, and
provision of computing services. In the month of February 2021, records from
the accounting books of ACE indicated the following transactions.
Purchases:
1. Imported 3 specialised agricultural boom sprayers as part of its trading
stock and paid Shs 23 million for each sprayer.
2. Imported high-end suits from Italy for its garment shop valued at Shs 15.3
million.
3. Acquired an industrial grade flat knitting machine for customising suits for
Shs 33.8 million.
4. Acquired a staff van for Shs 35 million for transportation of staff to and
from work.
5. Imported graduation gowns from China worth Shs 105 million for supply to
a public university.
6. For its computing business, acquired 15 licenses to sell customisable
accounting software. For each license, the company paid Shs 1.6 million.
Sales:
1. Supplied specialised chemicals for spraying locusts to farmers in Eastern
Uganda for Shs 18.7 million.
2. Made additional standard rated sales of Shs 16.5 million to Aga Khan
Education Service Uganda.
3. Exported 8 computers to South Sudan and invoiced the South Sudanese
company Shs 4.8 million for each computer.
4. Supplied an Enterprise Resource Planning (ERP) software for a
manufacturing company and charged Shs 7 million for the supply.
5. Made additional deliveries of high grade printers for Shs 26 million. By the
end of the month, the client was yet to be invoiced.
6. Designed a customised supply chain management software for a
commercial farm in Mbarara and charged Shs 74 million for the service.
Note: All amounts are Value Added tax (VAT) exclusive, where applicable.
Required:
(a) Compute VAT payable/claimable by ACE for the month of February 2021.
(11 marks)
(b) Under the VAT Act Cap 349 explain:
(i) any five contents of a simplified tax invoice
(5 marks)

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 Taxation – Paper 6

(ii) the conditions under which input tax credit may be allowed without
a tax invoice.
(4 marks)
(Total 20 marks)
Question 5
Bosico Electronics Limited (BEL) is an authorised dealer for Samsung electronics
in Uganda. In the Month of January 2021, BEL imported a consignment of Light
emitting diode (LED) television sets, fridges, and hi-fi music systems from South
Korea. The cost of the consignment was USD 32,162 however, BEL paid USD
28,946 for the consignment because of BEL’s obligation to run advertisements on
behalf of the manufacturer in Uganda.
Additionally, BEL paid:
1. USD 634 for transportation to the port of export.
2. USD 1,910 as cost of freight to the port of Mombasa.
3. Insurance cost of 5% of the value of the consignment.
4. USD 950 for inland transportation from Mombasa to Kampala.
The applicable rates of tax are provided as follows:
%
Import duty 25
Value added tax 18
Withholding tax 6
Infrastructure levy 1.5
The exchange rate ruling at the time of importation was 1 USD: Shs 3,700
Required:
(a) Determine the customs value and import duty payable for the
consignment.
(11 marks)
(b) Explain the advantages of and challenges faced by a customs union
(9 marks)
(Total 20 marks)
Question 6
(a) Describe the characteristics of sole proprietorship business.
(8 marks)
(b) Explain the aspects of retail shop design.
(6 marks)
(c) Explain the components of a joint venture agreement.
(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 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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