SUGGESTED SOLUTIONS

B4 – PUBLIC FINANCE ANDA TAXATION

AUGUST 2023

ANSWER 1

a) Name Mr. Maokoto

Residental status Non-Resident
Loan payable in 3 month – Nil -
Transport per month 4,800,000.00
Basic Salary 127,920,000.00
Car Benefit – Nil -
Rent from Durban – Nil -
Interest from bank -
Dividend from Durban – Nil -
Special assignment Durban – Nil -
Assistance to client to build house-nil -
Contribution by employer to Person -
Fund 25,584,000.00
Lunch per month 6,600,000.00
Over time for the year 4,600,000.00
Total income before housing benefit 169,504,000.00
Add: Housing benefit 7,800,000
Taxable income 177,304,000.00

Working house benefit

The lesser of i) and ii)
i) Rental Market Value 9,600,000.00
ii) Greater of a) and b)
a) 15% of the total income 25,713,600.00
b) The amount claimed 4,800,000.00

Hence Rental is (9,600,000 - 1,800,000) 7,800,000.00

b) RESIDENCE (Section 66 ITA 2004) individual is a resident in UR for a YOI if,

(i) Was permanent home in the united republic and is present in the UR during any
part of the year of income.
(ii) Is present in the United Republic during the year of income for a period or
periods accounting in aggregate to 183 days or more.
(iii) Is present in the united Republic during the year of income and in each of the
two preceding years of income for periods averaging more than 122 days in each
such year income.
(iv) Is an employee or an official of the Government of the united Republic posted
abroad during the year income.

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(c) The earmarked negative consequences of reducing tax rates

1. Reduced government revenue: Lower tax rates could lead to a decrease in

government revenue, potentially leading to budget deficits if government spending
is not adjusted accordingly. This may limit the government’s ability to invest in
essential public services, infrastructure, and social programs.

2. Inequitable distribution of benefits: Critics argue that reducing tax rates primarily
benefits higher-income individuals and corporations, exacerbating income
inequality. Lower-income individuals may not experience significant relief from
reduced tax rates, which can lead to an uneven distribution of economic benefits.

3. Impact on social services: Reduced tax revenue may force governments to cut
spending on crucial social services, such as education, healthcare, and welfare
programs, which can adversely affect vulnerable populations and undermine
societal well-being.

4. Increased national debt: If tax leads to lower government revenue without

corresponding spending reductions, it can contribute to an increase in the national
debt. High levels of debt can have long-term economic consequences, including
higher interest payments and reduced economic flexibility.

5. Inefficiency of trickle-down economics: Proponents of tax cuts often argue that

they will stimulate economic growth, leading to increased investment and job
creation. However, critics argue that the benefits of tax cuts may not trickle down
as effectively as proponents claim, and the resulting economic growth may not be
evenly distributed among the population.

6. Limited impact on investment decisions: Some studies suggest that tax rates are not
the sole or primary factor influencing investment decisions. Other factors, such as
market conditions, access to capital, and business confidence, may have a more
significant impact on investment choices.

7. Higher budgetary pressure: Lower tax rates can increase pressure on governments
to find alternative revenue sources or reduce spending elsewhere. Increased fees
and fines, which can importunately affect lower-income individual.

8. Long-term fiscal challenges: Reducing tax rates without addressing long-term

fiscal challenges, such as rising healthcare costs and an aging population, could
exacerbate financial strains on government budgets in the future.

(d)
1. Efficient transportation of good: Cargo aircraft provide a fact and efficient means of
transporting goods, especially perishable items, valuable commodities, and time-
sensitive materials. They can significantly reduce transportation time compared to
traditional modes like ships or ground transportation, which is crucial for country
trying to participate in global trade and meet demands.

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 2. Connectivity: Cargo aircraft can connect these regions to international markets,
enabling them to expect their products and import necessary goods and resources
more easily. This increased connectivity can help boost economic development and
diversity the local economy.
3. promotes trade and exports: Cargo aircraft facilities the export of goods from LDCs,
enabling them to participate in global and import trade networks and access
international markets. This can lead to increased revenue, job creation, and improved
living standards in these countries.

4. Reduced dependence on neighboring countries: In regions where land borders are

challenging or unstable, cargo aircraft can provide an alternative means of trade an
reduce the dependence on neighboring countries for transportation of goods. This can
strengthen the economic independence and stability of the country.
5. Customized cargo solutions: Cargo aircraft can accommodate various type of cargo,
including oversized or specialized goods that may not be feasible to transport through
other modes. This versatility allows a country to export a wide range of products,
including agriculture produce, textiles, handcrafts, and other unique items.

6. Cost-effective for high-value goods: While cargo aircraft can be more expensive
than other transportation modes, they become cost-effective when transporting
high-value and time-sensitive goods. These may include electronics,
pharmaceuticals, and fresh produce, where the benefits of speed and reduced
spoilage outweigh the higher transportation costs.
7. Seasonal export opportunities: For a country that rely on seasonal agricultural
produce like Tanzania, cargo aircraft can help exploit short-term export
opportunities. They can quickly ship perishable items to markets with high demand
during specific seasons, maximizing revenue for local farmers and traders.

ANSWER 2

(a) Capital allowance schedule

Class 1 2 3 6
Rate: 37.50% 25% 12.50% 5%
Toyota Harrier brand new 30,000,000 - -
Chair and tables -- 62,000,000
Air condition - - 34,000,000
Seven tonne Delivery Van - 23,000,000.00 -
Building - - - 52,000,000
Interest on loan to buy a house - - - 2,400,000
Computer 21,000,000 - -
Legal fee - - - 14,250,000
Min buss for staff 36,000,000 - -
Depreciation basis 87,000,000 23,000,000 96,000,000 68,650,000
Allowance 32,625,000 5,750,000 12,000,000 3,432,500

Total Allowance 53,807,5000

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(b) Taxable income
Name of the taxpayer - Dodoma Enterprises Company
Year of Income-2022
Net profit before tax 163,858,000.00
Add: Disallowed expenses
Penalty on late payable of Pension 3,490,000.00
Contribution to Watoto wadogo 2,500,000.00
Last year motor car expenses 5,850,000.00
Sister company staff training 8,570,000.00
Legal fee on House purchase 14,250,000.00
Fine and penalty 61,500,200.00
Interest on loan to purchase house 2,400,000.00
Depreciation 61,010,000.00
Contribution to Zoa Pension Fund 160,400,000.00 319,970,200.00
483,828,200.00
Less Depreciation allowances (53,807,500.00)
Taxable profit 430,020,700.00
=

ANSWER 3

The delays attracted the penalties and interest as calculated here under:

Amount paid in 30th November 2021

Taxable income declared was TZS 450,000,000

Tax on that amount per year was TZS 135,000,000

i) First instalment was supposed to file provisional return and pay tax due at the of the
first quarter.
Taxable income was TZS.450,000,000
Tax for the year =TZS 1,536,000+30%× (450,000,000-12,000,000) =TZS 132,936,000
Quarter payment are TZS 33,234,000
The provisional return was submitted on 30/11/2021
Month late 8 months
Penalty on late submission is the greatest of 5 currency points or 2.5% of the tax on
provisional times the month late.
5 x 15,000 = 75,0000/ or 2.5% x 132,936,000 = 3,323,400
Then penalty will be TZS 3,323,400x 8 = 26,587,200
Interest on the late = P ((1 + r/12)8 – 1) = 33,234,000 (1 + 5%/12)8-1) = 1,124,091

ii) Second instalment

Was supposed to be paid on 30/06/2021 but was paid on 30/11/2021
Month late = 5
Amount of tax to be paid TZS 33,234,000
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 Interest on late payment
=P(1 + r/12)5-1) = 33,234,000 ((1+5%/12)5-1) = TZS 698,169
Payment interest for the Second quarter is TZS 698,169

iii) Third Instalment

Was supposed to be paid on 30/9/2021 but was paid on 30/11/2021
Month late = 2
Amount of tax to be paid TZS 33,234,000
Interest on late payment interest on the late
= P((1+ r/12)2 – 1) = 33,234,000 ((1 + 5%/12)2-1) = TZS 277,527
Payment interest for the third quarter is TZS 277,527

iv) Due date of the Fourth Instalment was 31st December 2021 and the amount to be paid on
31st December was TZS. 33,234,000. No Penalties and interest as the amount was paid
before due date.

End of the year

v) Taxable income and tax declared was TZS 523,000,000.

Tax =TZS 1,536,000+30%× (523,000,000-12,000,000) =154,836,000

Testing for under payments, there will be underpayment if the tax paid will less than 80%
of the tax calculated after the end of the year, then
= (132,936,000/154,836,000) x100%
=85.8 ≈ 86% hence no underpayment

vi) The excess amount was supposed to be paid on 30/06/2022

It was paid on 02nd August 2022
Month late 2

vii) Interest for the late payment

Tax different = TZS 154,836,000 – TZS 132,936,000 = TZS 21,900,000

Interest on the late = P((1+r/12)2-1) = TZS 21,900,000 ((1+0.05/12)2-1) = TZS 182,880

viii) Penalties for failure to submit the Return on income on 30/06/2022 of 2 months is
5 x 15,000 or 2.5% x 21,900,000 whichever is higher.
75,000 or 547,000 = 547,500
So the penalty is 2 x 547,500 = TZS 1,095,000

ANSWER 4

a) Monetary Policy refers to set of policies managed by the Central Bank to

moderate the supply of money, nature of interest rates and credit development in
the economy. Or we mean those measures which are adopted by the Central Bank
to our case the Bank of Tanzania (BOT) to increase or decrease supply of money
in circulation.

b) The objective of Monetary Policy are to:

(i) Attain full Employment
(ii) Achieve Economic Growth,
(iii) Foster Balance of Payments Stability

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 (iv) Provide Credit at differential Interest Rates,
(v) Stability of Financial Markets,
(vi) Interest-rate Stability/Maintain a Continuously Low Structure of Interest
Rates,
(vii) Ensure that Government Deficits are Financed at Low Interest Rates,
(viii) Create a Brad and Continuous Market for Government Securities,
(ix) Help to Establish and Develop Financial Institutions, and
(x) Stability in Foreign Exchange Markets.

c) Monetary Policies or Measures/Instruments used by CB to regulate the National

Economy/Inflation and Controlling Money Supply.
(i) Bank Rate (Discount Rate)
(ii) Open Market Operation (OMO)
(iii) Reserve Requirement OR Reserve Ration
(iv) Rationing of Credits
(v) Foreign Exchange Interventions
(vi) Direct Credit Controls
(vii) Selective Monetary Controls
(viii) Refinancing Policy
(ix) Moral suasion and Gentlemen’s Agreements

d) (i) Affidavit including an affirmation or declaration in the case of persons by low

allowed to affirm or declare instead of taking oath.
(ii) Agreement or memorandum of agreement
(iii) Agreement relating to deposit of title deeds, hypothecation, pairing or pledge
(iv) Appraisement or valuation, made otherwise than under an order of the court
in the course of a suit
(v) Instrument of exchange of property
(vi) Lease agreement
(vii) Memorandum of association of a company
(viii) Instruments of partnership
(ix) Power of attorney
Transfer of shares, debentures or interest secured by a bond, mortgage deed
or policy of insurance.

ANSWER 5

a)
Out put
Sales VAT
June 1,479,063,209.00 225,619,811.54
July 1,261,667,414.00 192,457,741.12
August 1,059,121,360.00 161,560,885.00
September 4,250,512,593.00 648,383,276.90
October 1,925,789,391.00 293,764,178.29
November 237,331,999.00 36,203,186.29

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 In puts
Purchases VAT
June 1,083,250,567.20 165,241,611.23
July 1,387,834,155.40 211,703,515.23
August 847,297,088.00 129,248,708.34
September 3,400,410,074.40 518,706,621.52
October 1,540,629,912.80 235,011,342.63
November 189,865,599.20 28,962,549.03

OUTPUT VAT INPUT VAT VAT DUE TO TRA

June 225,619,811.54 165,241,611.23 60,378,200.31
July 192,457,741.12 211,703,515.23 (19,245,774.11)
August 161,560,885.42 129,248,708.34 32,312,177.08
September 648,383,276.90 518,706,621.52 129,676,655.38
October 293,764,178.29 235,011,342.63 58,752,835.66
November 36,203,186.29 28,962,549.03 7,240,637.26

b) The activities exempted from VAT in Tanzania

(i) When business supplying to the government or the government is importing goods
or services for the project implementation which is funded by a grant that has been
approved by the Minister as per the Government Loans, and Grants and
Guarantees Act.
(ii) When the business is supplying to any government entity where by the project will
be funded by the government. This also includes non-concessional loan,
concessional loan, or grant that is issued by an agreement between another
government and the Government of the United Republic.
(iii) When a business is importing goods or services into Tanzania after a natural
disaster has occurred. The importing of these goods and services will provide relief
to those affected.

(iv) When a business is importing or supplying goods and services to an NGO that has
an agreement with the Government of Tanzania. Note that such an agreement must
detail that the goods and services are exempted from VAT.
(v) When a business is importing or supplying goods or services to another entity that
has an agreement with the Government of Tanzania in place whereby the sole
purpose is to execute a strategic project. The agreement should specify the VAT
exemption.

c) Advantages of Increasing VAT Threshold:

(i) Reduced administrative burden: Raising the VAT threshold means that fewer
business will be required to register for VAT and charge VAT on their sales.
This reduces the administrative burden on both business and tax authorities,
as fewer business needs to comply with VAT regulations, submit VAT
returns, and maintain proper accounting records.
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 (ii) Lower compliance costs for small business: Small business often face
challenges in understanding and adhering to complex tax rules. By increasing
the VAT threshold many small business can be exempted from VAT
registration, threshold which reduces compliance costs and administrative
overheads allowing them to focus on their core operations.

(iii) Encouragement for small business growth: A higher VAT threshold can
incentivize small businesses to grow and expand without worrying about the
additional costs and complexities associated with VAT compliance. This may
lead to increased entrepreneurship and economic activity.

(iv) Reduced price distortion: VAT is a consumption tax, and when businesses are
VAT-registered, they pass on the VAT cost to the consumers in the form of
higher prices. By exempting smaller businesses from VAT, there is less price
distortion, which may benefit consumers.

Disadvantages of increasing VAT Threshold:

(i) Potential revenue loss: One of the significant disadvantages of raising the VAT
threshold is the potential loss of tax revenue for the government. With fewer
businesses required to charge VAT, the government may see a reduction in VAT
collection, which can impact public finances and the ability to fund essential
services and programs.

(ii) Impact on large businesses: Increasing the VAT threshold can create an uneven
playing field, giving smaller businesses a competitive advantage over larger ones.
Larger businesses that remain VAT-registered will still be required to charge VAT,
while smaller competitors are exempted, potentially leading to market distortions
and unfair competition.

(iii) Reduced VAT effectiveness: A higher threshold means that a smaller production
of economic activity is subject to VAT. This can limit the effectiveness of VAT as
a revenue-raising tool for the government, making it less efficient in generating
revenue compared to a lower threshold.

(iv) Difficulty in reversing the decision: Once the VAT threshold is increased, it can
be challenging to reverse the decision without causing disruptions to businesses
and the economy. Governments need to carefully consider the long-term
implication of such a move before implementing it.

d) There are two methods which can be uses to charge excise taxes.
(i) Excise taxes can be ad valorem (paid by percentage) of the value of chargeable
taxable goods or services. Sy 2% of mobile voucher.

(ii) Also it can be charged on unit of measure (specific method) say TZS 10 per
bottle/Kg/little/m3.

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ANSWER 6

a) Six Customs Valuation Methods

(i) Transaction Value
(ii) Transaction Value of identical Goods
(iii) Transaction Value of Similar Goods
(iv) Deductive Value
(v) Computed Value Method
(vi) The Fall Back Method

b) Function of Customs Department

(i) Collection of taxes and revenue on behalf of the Government
(ii) Facilitation of International Trade
(iii) Enforcement of Import/Export restrictions and Prohibition
(iv) Prevention of smuggling
(v) Production of Trade statistics
(vi) Promote voluntary tax statistics
(vii) Improve the quality service rendered to taxpayer
(viii) Licensing of agents

________________▲_______________

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