Tax Laws in Tanzania Publication Number

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. Mambo‟s 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 employee‟s 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) – AADU‟s Investment Income (Nil) – 000) – AADU‟s Investment Income (Nil) – Final Withholding – S. 54 (2)(ii) Dividend from KWENU Ltd (3. 86 (1) (a) Schd para 4 (b) (i)(iii) Dividend from CHUCHUMA Ltd (1.500.550. 9 (a) .000) – S.000) Final Withholding – S. 86 (1) (a) KWENU‟s withholding tax (5% x 3.000) – KWENU‟ s withholding tax (10% x 1.Final Withholding – S.500. 86 (1) (a) 1 st Schd para 4 (b) (i)(iv) Rent from Bakari (800.000) AADU‟s Investment Income (Nil) – SIDUSA‟s withholding tax (Nil) – Exempted – S.550.000) – 1 st AADU‟s Investment Income (800. 000) Schd para 4 (b) .000) – 1 st AADU‟s Investment Income (400. 87(vii) Gain from sale of land at KUNDUCHI (300.J. 87(v) Rent from Mr.000) – S.000. James„ s withholding tax – Not a withholding payment (vi) AADU‟s Investment Income (300mil – – S. 82(1) & (2)(a) Royalty from MADENGU Ltd (400.000) – S.000) – S.000) ‟s withholding tax ( 15% x 400.000) AADU‟s Investment Income (400. James(400. 9(a) MADENGU Tax credit to AADU (10% x 800. Bakari ‟s withholding tax ( 10% x 800.000) – S.000) Mr. 9(a) Tax credit to AADU (15% x 400. 000/= payable in advance in every month.000/= in respect of a loan that was taken out to purchase thisproperty.998.000. For the periodof 1 July 2009 to 1 April 2010 he paid loan interest of Tshs1.000 Peter owns two properties. 90(1)(a) on sale of land (29.998.(1) Tax credit to AADU (10% x 299.000Gain from sale of land at KUNDUCHI 299.(4) . The property was not re-let before 5 April 2010.000) – S.000 AADU‟s Total Income 401.000Rent from Mr.400Less: Tax credit available:Tax withheld from rent by Bakari (80. During March 2010 Peter spent Tshs200. James 400.598.000 Income from Investment 301.000 AADU‟s Business Income 100.(2) The first property was let from 6 April 2009 to 31 August 2009 at amonthly rent of Tshs 500.000 on advertising for tenants.000/= repairing the roof of this property. and was then let from 1 August 2009 to 1 April 2010 at a monthly rent of Tshs820. During July 2009Peter spent Tshs 200.998.000)Tax withheld from royalty by MADENGU (60.2.339.000Royalty from MADENGU 400.000. Total Income & Tax Payable by AADAU Residential Status: Resident Corporation for 2008Dividend fro SHIDUSA NilDividend from KWENU NilDividend from CHUCHUMA NilRent from Bakari 800.000/= payable in advance in each month. with the first property being let out furnished andthe second property being let out unfurnished.800) Tax payable by AADU 90. which are let out. 90(7) Computation: Investment Income.998.598.(3) The second property was purchased on 1 July 2009.000 as a single instalment ondisposal as required by S.000)Single instalment tax paid AADU shall pay 10% x 299.000) Tax thereon (30%) 120.600Question 7.479. Both properties arefreehold houses. The following information refers to Peter for the tax year 2009. 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.000 = 299.999. 000.796. 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. The Union Bearing manufacturing company Ltd.000.(7) During the tax year 2009 Peter received bank interest of Tshs1.000/= for the year ended 31 December 2010.000.000 during the yearfrom Twiga Cement where he owns 5% of all shares and withholdingtax of Tshs 100.760Dividend received (Final) NilInterest earned from DECI (Final) Nil Taxable Investment Income 8. of Kenya.000/= was deducted.000 .500) 8.550. for the past 20 years. bases and spare parts. Required: Calculate the Investment Income of Peter for the year 2009.760 Question 8.228. (UBMC) is a firmmanufacturing UNIMOG trucks.000/= from DECI a financial institution based in Dar es Salaam.000 Class II : 6.UBMC has the following classes of depreciable assets pools with theirrespective tax written down values as at 1 st January 2005: Class I : 2.025.228.(6) Peter also received a dividend of Tshs 2.025. The insurance ispayable annually in advance.260/= in February 2009.260 – 12.(5) Peter Sold his investment of 100 shares in Twiga Cement (Pty) Ltdcosting 12. It has been inTanzania as a branch of the Scania Ltd.796.500/= were sold for 21. and Tshs900.Peter insured both of his rental properties at a total cost of Tshs660.000/= for the year ended 31 December 2009. and 10mill/= loan toGeneral Tyre (EA) Ltd. While the purchaser took thefurniture during the same month. the UBMC advanced a 6mill/= loan tothe ACCL for purchase of plant and machinery.2 mill/=. the market value of which was estimated at 20 mill/= was stolenat DSM harbour.A new boiler was purchased for 600. On the 15/8/2005. (ACCL) of Pugu Road DSM.However.600. Part of the office furniture was soldduring December 2005 for 1. A concrete foundation was constructed for 300.The company was using tyres manufactured by the General Tyre (EA) Ltd.000/= for the glass manufacturingsection. payment was to be made during March2006. 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. Required: Calculate the depreciation allowance that UBMC is eligible toclaim from TRA according to the ITA. 2004 as at 31 st December 2005.583. Since these major sources of rawmaterials had financial problems. worth by then 3. This was used from mid December 2005. Dar es Salaam. UBMCwon the 2 nd prize – a valmet tractor. Suggested Solution Tax Payer: Union Bearing Manufacturing Company Ltd. It also purchased a new ship of 500 tons for 60mill/=.the ship.000/=. for the purpose of purchasing a lorry to transport rubber from Iringa rubber farms. which was held at Kurasini.Part of the plant and machinery was sold for 3 mill/= on 3/2/2005. Both were used from the same date. pending a price review. the company had attended the International trade fairorganized by the BET.700/= In July 2004.of Arusha Tanzania and radiators manufactured by the Afro CoolingCompany Ltd. (UBMC) Year of Income: 2005 Computation: Depreciation Allowances . TheUBMC received the tractor on 16/8/2005 and used it from the same date.Class III : 2. the delivery of the tractor was delayed. Thistractor was ordered by the government from the Valmet plant in DSM.000/= to installthe boiler.Prices were reviewed to 10 mill/= per tractor during August 2005. 700.550.DEPRECIABLE ASSETS DEPRECIABLE ASSETS POOLSCLASS I (Tshs.com Page 6 RATE – A 37. Ltd.000 93.250 23.000 1.700 Additions: Air craft 50.blogspot.383.000.5% 25% 12.700Incomings: P&M (3.700DEPRECI.583.000) DEP.000) Ship (stolen) (20.250 23.550.000 172.000.000 2.) II (Tshs.200.250.593.000 6. BASE – B 2.taxation-tz.000.) III (Tshs.000/= or (93.5% TWDV 1 st Jan 2005 2.250. commenced a business of assembling computer hardware on1 st .550.000 116.963 TOTAL ALLOWANCES 956.000 172.000 2.583.000Question 9.000Boiler (initial allowance) 2.000* 1.000 – 23.000.000/=) less 23.963 TWDV 31 st Dec 2005 1.000.000 Annual allowance: A * B 956.000.700.000.) ©Tax Laws in Tanzania Publication Number :: TLT-01 Kessy Juma :: http://www.200.000.000)Office furniture (1.000Ship 60.000. ALLOWANCESInitial allowance: Boiler (price + instal)50% * (600 + 300) 450.738*(93.000/= + 900.210.000) + 450.750 70. ABC Co. 28million.the total cost of which was Tshs. into a factory building afterincurring additional alterations cost of Tshs. 15million at Tshs. 180 million. d) Two five-ton Lorries worth Tshs. 2 million.000/= After the commencement of the business.b) Factory building was acquired for Tshs.g) Office furniture was purchased for Tshs. Ltd.2 million. This asset had aTWDV of Tshs.iv) The remaining lorry was exchanged for a new one on 1 st March 2006.400. a godown building constructed for Tshs.finished products from 1 st January 2006.000. It was used for storage of ABC Co. which was used by the XYZ‟s director.iii) BBA sold to ABC Co.ii) On 1 st November 2005 an eight-ton trailer was purchase for Tshs. Tshs.c) Factory plant and machinery worth Tshs. . 23 million. had to pay an additional Tshs. 1.500. 15. 1. 4.000. 60 million in the vendor‟s books. The company acquired the following assets from XYZ. ABC Co. Ltd.f) Processors. 40 million in total. Printers. Their total TWDVwas Tshs.ABC Ltd. 4. This car had a nil BV and TWDVin the books of the vending company. 20 mill.000. which were semi – assembled. 24 million. Data key boards. 24 million. 8 million as insurancecompensation was received from National Insurance Corporation forthe loss.900. Ltd. The office was air-conditioned with airconditioners worth Tshs. 32 million and their total book value (BV) was Tshs.May 2005. One fifth of thisbuilding houses the head office. This was converted by ABC Co.800. whichwas winding up its business in the URTon 30 th April 2005:a) A house. The tax writtendown value (TWDV) of the machinery was Tshs.000/= and accumulated depreciation of Tshs. 38million.h) Office stationery and some operational guides were also purchased forTshs. 10 million for the new lorry. for Tshs. the following transactionstook place: i) One of the lorries was gutted by fire. Ltd. 175 million.were also acquired for Tshs.e) A saloon car costing Tshs. used the car purelyfor business purposes.000. 000 Annual allowance: A * B 21. Ltd.000) DEP.000Saloon.500DEPRE.5% 25% 12. Ltd. ALLOWANNCESInitial allowance: P&M (50% * 180. BASE – B 57.500 775 10.000Factory building 15.000)Exchangedlorry(14. 2004.Required: Compute depreciation allowances to be granted to ABC Co.000Trailer 38.200 218.) .200 218.000 38.godown24.200 43.000) 90.000 6. P&M ( initialallow.) RATE – A 37.000 175.000 2.000 0 6.500 775 10.200 24.000 6.375 9.OF. 2005 35.000 79. Suggested Solution Tax Payer: ABC Co.625 118.925 TWDV 31 st Dec.000 38.500 55.500* .500 Additions: exchangedlorry.for the year of income 2006 under the Income Tax Act. AC40.000 4. Year of Income: 2006 Computation: Depreciation Allowances DEPRECIABLE ASSETS DEPRECIABLE ASSETS POOLS („000) CLASS I (Tshs) II (Tshs) III (Tshs) VI (Tshs.000Factory buildingalterations4. factorybuilding15.5% 5%COST: 2 lorries.500Incomings: one lorry-fire (8.925 TOTAL ALLOWANCES 21375 99. 000.000Miscellaneous expenses 8.000=> Total tax paid by partners shs.000. 8.000.600.500.000Interest 5.000Salaries and wages 26. 7.000.000/= in year2000 and used for residence was sold to Mr.500. 2004showed the following:Class I IIValue 50.com Page 7 => Office electricity shs.000/=) less 99.425 207.000/=.000. 350.800.000/=.000.300.000=> Michapo shs.000.000/=1Land cruiser Tshs. 35.000=> Office Attendant shs.000Tyres and tubes 55.(viii) Asset acquisition during the year were:Land rover Tshs.000/= 123. 7.000(vii) Bushek‟s personal account showed Tshs. 3.000Other income 400. 4.000/=1All these were used in the partnership business. A non-resident corporation paid dividend.000Spares.000 Additional information is given as follows:(i) The partners equally spent 10% of fuel and oils used for officevehicles for private purposes. Their business income statement for the year 2004.000. 4.500.000.000.realization is part payment of sale of a building for Tshs.000=> Tip to Police to allow speeding car shs.000.000.600. 3. 2. John in 2004. repairs & maintenance 14.000=> Bushek shs. The depreciation basis asat 31/12/2003 after pooling assets based on the Income Tax Act.000/= and 5. 600.000 ©Tax Laws in Tanzania Publication Number :: TLT-01 Kessy Juma :: http://www.000 211.000 Net loss for the year 2.000/= as income received from Royalty.575 * (38.000=> Weigh bridge fines shs.000Interest on loan paid to Bush shs.000.(ii) Analysis of salaries and wages:=> Drivers shs. 600.000/=1Tractor Tshs.blogspot.000. 4.000(iii) Analysis of miscellaneous expenses:=> Office cleaning shs.000.000.000.000=> Bush shs.20.000Stationery 800.500/= Question 10.has the following results:Revenue 208.000Licenses 300.000 Less: Operating ExpensesDepreciation allowance 10.000/= Required: . 5. Bushek and Michapo are partners in one enterprise dealing intransport business. Dividend andRealization respectively. 3.taxation-tz. 40. 10.000/= + 180.000Fuel and Oils 90.000Total Income 208.000.400. Bush.000.000. 3. The building that costed Tshs.000/=2Pick up Tshs.000.000.5. 250.000(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. 500.000Tractor 40.000 123.587.000Depreciation allowance 10.) II (Tshs.500 Adjusted Distributable Loss (38.437.000.000.)RATE – A 37.000 (ii) Computation of partners‟ taxable income Bush Bushek Michapo Total .500 122.000TWDV – 31 Dec 2004 64.000.000 DEPRECIATION BASE – B 102.387.500)Note 1: Computation of Depreciation Allowance: DEPRECIABLE ASSETS DEPRECIABLE ASSETS POOLSCLASS I (Tshs.200.750.187.000DEPRECIATION ALLOWANCES 38.000) ADD BACK: 10% fuel & oils 9.000Tip to Police 600.250.600.000Total tax paid 3.5% 25% TWDV – 1 Jan 2004 50.300.000.000 Additions: Land Rover 10.000Interest on loan 600.000 43.000 163.000Land Cruiser 35.(i) Determine the partnership profits/losses(ii) Determine the partners taxable income Suggested Solution (i) Computation of partnership profit/lossProfit/(Loss) per accounts (2.000Depreciation – Note 1 79.800.000 Partners‟ salaries 16.800.500 79.000.500.000.062.500 40.000.500.000.000Weight Bridge fines 3.000Deduct Interest on drawings (note v) 400.000Pick Up 7.000Subtotal 41. 000 Total -1.833 -5.000 at the time of realization.195.(ii) A beneficial interest in a non resident trust. Income Royalty 2.000 3.000.000.000Fuel & Oils 3.000.000.167 -6.000Interest on loan 600.(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. .833 38.000 .833Question 11.000.000 3.000.187.195.795.795.795.000.000 4.600.000.Salaries 8.833 12.000)Share of loss 12..000 16. An individual‟s land that has been used for purposes for agricultural purposes for the past two years and whose market value does not exceed 10.000Inter on drawings (400.000.795.000 9. or Listed on Dar es Salaam Stock Exchange.204.195.195.833 -6.000.833 12.Sec 86 Realization 5. Investment Assets are:(i) Shares and securities other than shares: By a resident parent in its resident subsidiary.500 Add: Inv.387.000 Dividend FWP.000 4.833 1. Question 12. or By a non resident controlling less than 25% of the controllingshares of the company.000.833 -13.000) (400.500 Subtotal -1.000. What are investment assets under the Income Tax Act 2004? Suggested Solution According to section 3 of the Income Tax Act 2004.000. 500.(vi) Managing Directors personal visitors entertainment expenses – Tshs3.(iii) Amortized amount to replace a roof – Tshs 4. 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.355 Operating Expenses 27.(v) Penalties for VAT – Tshs 3. land or buildings.756.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.000 on the importation of rawmaterials.355 Gross Profit 123.Finance company – a company whose activities consists mainly in dealingin securities.000. the commissioner for Large Tax Payers received a return of income of KK Ltd showing a net profit of Tshs 214.(iv) Payments made to remove erroneous terms of a loan contract – Tshs821.000Other expenses 96.710Cost of sales 150.143.136 Included in other expenses item is a list of the following:(i) Exchange Loss of Tshs 42.219 Net Income 214.880. In year 200X.500 to terminated employees.970.(vii) Political parties contributions . Finance companyalso deals with provision of loans to individuals and businesses. to be bought and sold.000.970.733.000.000.000.136 computed asfollows: Tshs Sales 273. Question 13.(ii) Compensation of Tshs 618.000. (xi) Cost to prepare revised accounts – Tshs 1.(ix) Incentives – Tshs 1.136 ADD: Amortized amount to replace a roof 4.543.232.205.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.500.741.(xiv) Salaries for future services – Tshs 6. KK Ltd.blogspot.– Tshs 1.000.000.taxation-tz.REQUIRED:Apply the provisions of the Income Tax Act 2004 to determine the taxableincome for.326. Suggested Solution Computation of taxable income of.473.000 .(x) Treasury Loan used by Director to go abroad on vacation – Tshs3. and tax payable by.000Penalties for VAT 3.733. KK Ltd.(xv) Legal cost for unsuccessful recovery of salaries from terminatedemployees – Tshs 627.753. Tshs Net Income as per accounts/return 214.456.(viii) Board meetings expenses – Tshs 4.520.123.(xiii) Cancellation of contract – Tshs 8. and tax payable by.(xii) Construction cost of a new laboratory – Tshs 13.450.577.124.007. ©Tax Laws in Tanzania Publication Number :: TLT-01 Kessy Juma :: http://www.620. Sinda.000Interest on share Capital: SindikaSindi 745. In march.250. Kibwe Traders is a made up of three partners. Legal fees in respect of traffic offence to Sindi . and Sindikawith profit sharing ratios of 45%.000Operating Expenses: Salaries and Wages 7.MD‟s personal visitors entertainment expenses 3.200.440. Question 15.000Interest on Loan: Sinda 725.625.577.890.928.000Accounting fees 7.450.123Construction cost of new laboratory 13.150.000Sindi 715.000Sindika Nil 1.930.000 22.900.329Tax thereon (30%) 9.000Office rent 725.000 in respect of entertainment toSindika.000 Adjusted Taxable Income 36.620Salaries for future services 6.210.000Net Profit 61.860. Half of the medical expenses were in respect of treatment of partnersand their families equally.007.000Sundry expenses 7.880.000Charity and donations 7.500.000Sinda 755. Thefollowing details were obtained in their Financial Statements as at 31 st December 2005: Tshs Tshs Gross Profit 173.000 Additional Information: 1.000Salaries to partners (equally) 50.543.000Medical expenses 7. Sindi.000Profit on sale of machine 2.599Question 14.000 96. 2005 office rent was paid to Sindika.3.900.750.e.000Entertainment 7.000 1.000 183. 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.000Depreciation: Factory Building 7. i.000Processing Machinery 7. donation was paid to Rombo OrphansCenter. 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 2004.520.300.4.2.975.500.650.500.450Treasury Loan used by Director 3. 15% and 40% respectively. Entertainment includes Tshs 230.840.000Saloon car 7.000 Interest on Sindika‟s overdrawn 7.000Political parties contributions 1. 000 and Motor vehicle Tshs7.000. TSHS TSHS Profit as per accounts 61. The useful life of theright is 5 years and 8 months.Machinery Tshs 10. In February 2005.000.000 andSundry Expenses – Tshs 190.000.000. 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. Machinery Tshs 13.700. in September 2004 therewas a capitalized interest of Tshs 6.7. REQUIRED: Compute adjusted partnership income and partners‟ income for the year ending 31 st December 2005.8. there were expenses of three-fold: MotorExpenses – Tshs 850. Bank Interest on Loan – Tshs 125. Suggested Solution KIBWE TRADERS ADJUSTED PARTNERSHIP INCOME STATEMENT FORTHE YEAR ENDED 31 ST DECEMBER 2005.5.000.000. owned the factory worth Tshs 700.[Note: The profit on sale of Machinery is from Sindika domestic tailoringmachine and interest on overdraft is not related to business]. In april. [The depreciation rate is 15% on reducing balancemethod].930. In 31 st December 2004.000 and Motor Vehicle Tshs 600.000.000 had been paid to Tax Consultant in respect of an appealmade against assessment by TRA. 2005.000. However.– Tshs 760.000where as accumulated depreciation for a factory was tshs800.000.000.640.000.000 Add: Non Allowable Deductions . Tshs 725.6.000.000. 583 Adjusted partnership income 52.000.833)Medical Expenses 1.625.blogspot.333 16.949.583Note:Class II: Cost [10.000 725.625.000.333 Total Depreciation 193.750Class VI: Cost [800.896) 11.000] 631.215.583 203.000Salaries 16.000Depreciation – 5% 75..750.000Medical expenses 3.479 (2.700.208.000] 1.440.500.340.000.702.374.com Page 9 .230.000+13.000.000.000 755.000Entertainment to Sindika 230.333Entertainment .208.000Legal fee – Sindi 760.500.taxation-tz.000150.380.187) (21.Charity & Donations 7.128.000Depreciation (1/6) 38.835.000+600.376.963.000Patent right 230.000 Class VII: Cost 230.994.333Interest on capital 745.414.000Salaries to partners 50.000.197.583 Partners‟ Income from Partnership:Sindi Sinda Sindika Ratio 45% 15% 40%Loss (23.640.796.000WDV (31 st December 2004) 473.414. ©Tax Laws in Tanzania Publication Number :: TLT-01 Kessy Juma :: http://www.210.000+700.000Depreciation – Note 1 193.963.505.150.963.333 1.847.000Depreciation (2004) – 25% 157.000 -Interest on loan 715.167)Question 16.000 Total Share (4.000Depreciation 22.000Interest on share capital 1.562) (7.000 88.450.000 Depreciation (2005) – 25% 118.000+7.000Interest on loan 1.000Profit on sale of machine 2.250WDV (31 st December 2005) 355.890.333 16.333 1.208.000Less: Allowable Deductions Interest on overdraft 7. the exempted income is not taken into account in determiningthe tax rate to be applied on the domestic income. the investor‟s country of residence exempts from taxation income from foreign sources. In this case.(ii) Conflict of residency against source or situs (Source VsResidence Clash).(iii) Concurrent limited liability to tax (dual source clash). In the former case. 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.(ii) Credit Method The investor‟s cou .(c) International double taxation can be eliminated by:(i) Exemption Method Under this method. (b) Illustrate the occurrence of international double taxation as a result of clashes between tax jurisdiction principles. In the latercase the exempted income is actually taken into account indetermining the applicable tax rate. limited liability to tax). The exemption maybe integral or may occur with progression.g. two or more countries claim sourcetaxingrights e.(b) Double taxation can occur whenever any of the following threephenomena happen:(i) Concurrent full liability to tax (inconsistent residency rules orDual Residence Clash). One state may tax a person on his worldwideincome because he is resident (i.e. REQUIRED: (a) Define theterm “International Double Taxation”. full liability to tax) whileanother state may tax the same person because he derivesincome from that state (i. a company incorporated in country A having apermanent establishment in country B which derives income incountry C.One person may be subjected to limited liability to tax in twostates. 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.(c) Describe the two main methods used to eliminate double taxation. Both B and C will have limited liability to tax theincome.Paying tax more than once on the same tax base is a serious problem for taxpayers generally.e. (iv) Promoting domestic compliance with respect to income arisingoutside the country. the CIT may make adjustment onassessment at any time. theCIT may adjust assessment within three years after the date for filingthe return of income which relates to such assessment.(iii) For a person who fails to file a return of income with the intent of evading or delaying payment of tax. Suggested Solution Benefits that Tanzania may get from Double Taxation Treaties include:(i) Minimizing the negative impact of loss of revenue to the government. Suggested Solution “Domestic Permanent Establishment” means permanent establishments of non-resident individual.(ii) Reducing distortions to investment flows.trust or corporation is resident but excludes a domestic permanent establishment. the CIT mayadjust the date on which the notice of assessment is served on theperson assessed.(ii) In case of best judgment assessment (under S. Question 17. Outline five benefits that Tanzania may get from Double Taxation Treaties. trust or corporation situated in theUnited Republic of Tanzania. as if it were a tax paid toitself. 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.ntry of residence treats the foreign tax. partnership. Question 18. Distinguish between the terms “Domestic Permanent Establishment” and “Foreign Permanent Establishment”. partnership.(v) Allowing for the exchange of information between countries andhence providing a country with means of accessing informationotherwise not available. by providing goodgovernance and transparency.(iii) Enhancing the competitiveness of domestic businesses. The Income Tax Act 2004 specifies a certain statutory time limit formaking adjustment on assessments by the commissioner of Income Tax.95(2)).94) or jeopardy assessment. “Foreign Permanent Establishment” means all permanent establishments of an individual.within certain statutory limitations. partnership. Question 19. trust or corporation that are situated in anyone country that is not the country in which the individual.(iv) . (ii) Received Tshs 100 million for transport of passengers from Tanzaniato South Africa.000 million for transport of cargo from China toUnited Kingdom.(iii) Received Tshs 1.The date on which Timago filed the statement: 30 th September 2006. the companycarried out the following transactions:(i) Received Tshs 400 million for carriage of cargo from Tanzania toChina. .540. The company filed the statement of withholding taxes for th period on 30 th September 2006. Timago Co.000 x 3 = 777.Therefore interest = 259. 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 2004.67% per month)Interest = 15. During the year of income 2006.For inaccurate assessment by reason of fraud by or on behalf of theassessed person.(iv) Received Tshs 300 million for rental of containers for carrying cargofrom Tanzania to India. adjustment on assessment can be raised at any timeby the CIT.000 x 1.6667% = 259.000 and take the greater.98(2)Statutory interest rate = 20% (or 1. Interest computations – S. Its total number of employees is 100 for which thecompany paid 15.540. Question 20. Yuhang Ltd is a company registered in China and has no permanent establishment in the United Republic of Tanzania.(Where applicable.000Compare with 100.000 to TRA as PAYE collections for the periodbeginning January 2006 to June 2006. The company operates asea transport business. the statutory interest rate is 20% per annum). Failure Duration: 3 months. Ltd is engaged in manufacturing of different types of leatherbags and cases.000 Question 21. Suggested Solution Due date for filing statement of withholding taxes by Timago for theperiod beginning January to June 2006 is: 30 th June 2006 . REQUIRED: Advise Yuhang Ltd on Income tax consequences of the above transactions.K] NilRent of containers to India 300 mil 800 mil .A 100 milTransportation of cargo [China to U. 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. Suggested Solution Since Yuhang is a non-resident sea transport business operator. blogspot. Suggested Solution .taxation-tz. Question 22. 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.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. or road construction ormaintenance and(ii) The entity has been issued with a ruling from the commissionerstating that it is a charitable organization. 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. water. education. Define a Charitable Organization as per section 64 (8) of the Income TaxAct 2004.©Tax Laws in Tanzania Publication Number :: TLT-01 Kessy Juma :: http://www. Question 23. 000Contractual penalties 4 5.000Interest income 3 12.000Mrs. thedraft of which together with the additional information was as follows:Notes “000” Tshs.000Provisions 10 28.These were shares of Sungura Cement Company which distributeddividends during the period. 1. B. (Mr.000 for sale of furniture which wasused by the company. A (wife of Mr.2.000Contributions to retirement fund 8 15. Directors fees were paid to the following persons:-Mr.000) Additional notes: 1.000Insurance 18.000Loss for the year (181.000 972.000.000 as interest from its bank deposits and another Tshs. 200. The company had bought some shares from City Stock Exchange.4. The Director used the loanto acquire a building in Kenya. The amount was received as a result of a business contract which theother party breached it.153.000. Sales1 950.000Sundries 11 10.000Depreciation 9 120. A.000Legal and professional fees 7 20.000 from a director to whom thecompany had extended a personal loan.000Dividends 2 5.000Salaries 300.000 Expenses: Directors fees 5 320. “000” Tshs.000 1. Sales figure includes Tshs.000. The Company earned Tshs. A‟s brother) . It has drawn up its first accounts to 31 st December 2005.5. Kigongo Company Limited was incorporated in Tanzania and commencedits business on 1 st February 2005 as a retailer of audio-visual products inTanzania. A) 50.000.000Travelling and entertainment 22. 8.000 Mr.3. 4.000.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 24.000Interest expenses 6 80.000Rent and rates 220. 70.000.000The computers were acquired on hire purchase terms for 12 months.9.000.000.000 was due on15 th February 2005 and the first monthly instalment of Tshs.000.000) Add: Non Allowable Deductions: .000.000.000. The company acquired the following assets:On 15 th February 2005 – Furniture and equipment 100.000Amount paid to Tender Board members to facilitatewinning a bid4.000.000.000.00011.0006.000.000.000Legal fees for staff contracts and retirement funds 6.000. REQUIRED Based on the information available. Provision for debtors (specific) 11.000320.00015. The balance wasgeneral consumables used by the office.000Finance charge on hire purchase agreements 50.000 Employer‟s contributions 7.000. 20. 300.500.0007.500.The down payment of Tshs.000 was made on 15 th February2005 and the first monthly instalment of Tshs.000Interest on failure to pay previous years Vat 10.500.000Provision repairs (estimated) 8. The cash price of thecomputers was Tshs.00080.000. Employees contributions 7. Sundries included a traffic fine of Tshs.000.000On 1 st September 2005 – Motor car (station wagon) 200.000. Suggested Solution Computation of taxable income of Kigongo Company for the year of income 2005:Net loss for the year (181.000On 15-02-2005 – Computers and accessories 300. 120.000.20.10.000. 3.000.000.000Provision for stock obsolescence 9.000. determine the taxable income of Kigongo Company Limited and its tax liability for the year of income 2005.Interest paid to bank on overdraft 20.000.000 was due on 15 th March 2005.000.00020.00028.0008.000. Audit fees 10.000The contributions were made to an approved retirement fund. 000.000Employees Contributions 7.000Dividends (FWP) 5.5% Computers 300.5% 12.000. Note 1: Computation of depreciation allowances Class I Class III Total37.000.000 8.000 173.000Depreciation 120.000Tender Board Expenses 4.000.000.500.500.Directors fees NilPenalties (VAT) 10.500.000Furniture & Equipments 100.000.000.000 No tax liability and the loss can be carried forward as an expense for next year of income.000 Tax Loss 144.000Interest Income NilBusiness contract penalties NilDepreciation allowances (Note 1) 130.000.000Traffic fine 3.000.000Motor cars 15.000.000 136.000 .000Provisions 28.000.500.000Deduct: Allowable Deductions: Sales of furniture 1.500.000.000 100.000 315.000. . . . . . . . blogspot.875.Mwanamboka Company Ltd.000 to ZAMAFRICA.SAHI paid an interest of USD 150.com Page 11 Less: IncomingsFurniture (1.000 Depreciation allowance (118. The Mwanamboka Company Ltd is a parent company that is based inTanzania.000) (12.000WDV (31 st Dec 2005) 196.000) 130.©Tax Laws in Tanzania Publication Number :: TLT-01 Kessy Juma :: http://www. one in Zambia namedZAMAFRICA Ltd having 50% shares and another in South Africa namedSAHI having 60% shares. ZAMAFRICA doesnot tax interest but tax dividends at a rate of 5%.000Question 25.000 99.375.000. REQUIRED: (i) .125. The Zambian company has invested in a SAHIwhich has similar business with that of the parent company.taxation-tz. It has two foreign subsidiaries.625.100.000 86.500.000.000) Depreciation Basis 315.000 andrealized a business profit of USD 1.000.000 during the tax year of income2005. The ZAMAFRICA Ltdpaid dividends to the parent company to the tune of USD 120. 000Total tax payable 166.300 x 30% = 172.000/1.130. (ii) Determine the tax payable.000 x 51% = USD 576.144(ii) Determination of net tax payable (S.000 x 576.Calculate the unallocated income and taxable income for the ZAMAFRICA Ltdthat is based in Zambia.000 x 5%) 6. Com Hons (Accounting).250.000) Unallocated Income 1.890==================================================== ========================================================== ========================================================== ========================================================== ==========This publication has been prepared by Juma Kessy – B.000Business profit 1. UDSMLet him be aware of any errors in this edition and send corrective suggestions. 75(1)) = 1.250.000 x 576.100.000 Less: Distributions – S. 74(2) USD USD Interest 150. . if any.300 Taxable Income Distribution (S. Suggested Solution (i) Determination of unallocated income and total taxable incomeTotal Income – S.100.75(3))Investment income = 150.300 = 507.77(1)) NilNet tax payable 166. 74 (1) (120.890Foreign tax relief (S.000/1.156Business income = 1.130. 75(4))Tax on unallocated income = 576.250.890Less: Tax on dividend for foreign company(120.000 1.300 = 69.000 Company‟s share (S.