SUGGESTED SOLUTIONS

B4 – PUBLIC FINANCE AND TAXATION

NOVEMBER 2023
ANSWER 1

(a) Section 68 of the Vat Act provides conditions for claiming input tax. If such conditions
are not met, a person is not allowed to claim input tax. Availability of relevant
information is a stepping stone towards determining input credit. For example, only
input taxes incurred to make taxable supplies are creditable. In this regard, there is a
need to know the nature of products and services offered by Janjajanja Ltd. None of
this information was made available to CPA Msema Kweli.

Detailed analysis about what is missing for each item is given below
Purchase
Electricity Although most of electricity service providers are registered for VAT
purposes, it is not appropriate to take this assumption. There was a
need to have clarity on this so that we can tell Whether VAT was
charged by the provider or not.
Furthermore, there is a need to know the reason behind incurring this
expense and this should be related to sales

Legal fees Although it can be clearly concluded that professional service

providers have legal obligation to impose VAT on the services they
render, on the other hand it is important to know the reason behind
incurring this expense. This will help to determine whether the input
tax incurred is attributable to taxable supplies, exempt or both.

Stationers There is a need know whether a supplier stationery is registered or

not so as to know if the input tax was paid. Also, there was a need to
know if it was purchased for the purpose of selling or using? This
would help to know how to treat the input tax, if any.

Fertilizers Fertilizers are exempted, no need of further information.

Beverages Information about registration status of the supplier is not given. This
would help to know whether VAT was paid or not.
Water There is a need-to-know what kind of water is this and the
registration status of the supplier. This is because bottled water is
taxable while tap water is exempted.
Telephone Just like other items, there is a need-to-know registration status of
the supplier and whether this amount is for telephone devices or
services and reason behind incurring the expenditure in relation to
sales.

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(b) (i) Regulations
Regulations under the Income Tax Act
The Income Tax (Exemption) (Expatriates Employees) (Extension of the Lake Victoria
Pipeline Water Supply Project to Tabora, Nzega and Igunga towns)
(Package II) (M/S Larsen & Toubro Limited-Shriram EPC Joint Venture) Order, 2022

The Income Tax (Registration of Non-Resident Electronic Service Suppliers)

(Amendment) Regulations, 2023.
The Income Tax (Registration of non-resident Electronic Service Providers)
Regulations, 2022.

The Income Tax (Transfer Pricing) Regulations, 2014.

The Income Tax Regulation Transfer Pricing Guidelines.

Regulations under VAT

The Value Added Tax (General) (Amendment) Regulations, 2023

The Value Added Tax (Registration of Non-Resident Electronic Service Suppliers)

(Amendment) Regulations, 2023

The Value Added Tax (Registration of non-resident Electronic Service Suppliers)

Regulations, 2022

The Value Added Tax (Exemption Management Procedures) Regulations, 2021

The Value Added Tax (General) (Amendment) Regulations,2021
The Value Added Tax (General) Regulations, 2015
The Value Added Tax General Regulation, amendments, 2018
The Value Added Tax Exemption Monitoring Procedures) Regulations, 2018

(ii) According to regulation 4 of Income Tax Regulations, 2004 Expenses paid by the
employer to the employee will be deductible expense on if the expense is also included
in the computation of an employee employment income.

(c) Conditions to the granting duty drawback are:

Where the owner of any goods claims, or proposes to claim, drawback in respect of
goods, then, as a condition to the grant of such drawback, he or she shall

• Enter such goods in the prescribed form and in the and prescribed manner and
produce such goods for examination by the proper officer before the exportation of
the goods or the performance of the conditions on which drawback is allowed;

• Make and subscribe a declaration on the prescribed form to the effect that the
conditions under which drawback may be allowed have been fulfilled and, in the
case of goods exported or put on board any aircraft or vessel for use as stores— (i)
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 that such goods have actually been exported or put on board for use as stores, as
the case maybe; (ii) that such goods have not been re-imported and are not
intended to be re-imported into the Partner State; and (iii)that such owner at the
time of the declaration of such goods for drawback was, and continues to be,
entitled to drawback; and

• Present his or her claim for drawback within a period of twelve months from the
date of the exportation of the goods or the performance of the conditions on which
drawback may be allowed.

ANSWER 2

(a) Underestimation
Indicator for underestimation
A person is said to have underestimated tax (or income) where:

Estimated tax (or income) is less than 80% of the correct tax (or income).

Or

The difference between estimated tax (or income) and actual tax (or income) is greater
than 20% of the correct tax (Of income).

Implication of underestimation
Underestimation attracts interest at the statutory rate for each period between the due
date for filing the statement of estimate tax (provisional return) and the due date for
filing the return of income, compounded monthly.

(b) Kibibi
(i) Calculation of income tax payable:
The base is on taxable Income of TZS 49,400,000
By using resident individual income tax rate, then is determined by

Amount of income tax payable:

Details TZS

TZS (128,000 x 12) 1,536,000

Plus 30% (49,400,000 – (1,000,000 x 12) ) 11,220,000
Tax payable 12,756,000

(ii) Non-compliance that Kibibi has committed in relation to income taxation for
the year of income 2022 (ignore failure to register and obtain TIN).
▪ Failure to file a statement of estimated tax on the due date.
▪ Failure to pay estimated taxes on installments (all the four installments) on
the respective due dates.
▪ Failure to file a return of income on the due date.
▪ Failure to pay tax on the due date.

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 (iii) Any penalties to which Kibibi is liable in relation to (b) above (Ignore
calculations).
▪ Penalty for failure to file statement of estimated tax 5, currency points or
2.5% of the tax payable on the statement (whichever is higher) for the entire
period delayed.
▪ Penalty for failure to file statement of estimated tax
▪ 5 currency points or 2.5% of the tax payable on the return (whichever is
higher) for the entire period delayed.

(iv) Any possibility that Kibibi’s income tax may be assessed on presumptive tax
basis and whether this will reduce tax payable.

▪ We are not informed about the turnover that Kibibi made during the year.
Being a resident (permanent home in URT and physical presence during
YoI) and not having any other source of income apart from this business
could make her eligible for being assessed on presumptive basis
(assuming that she has not elected io disapply the alternative).

▪ The unanswered question, as shown above is whether the turnover for the
period is withing the TZS.100,000,000 threshold. Looking at the figure of
income as per assessment made by TRA, it looks unlikely that her
turnover for the year will be within the limits for presumptive taxation.

▪ It is therefore, unlikely that she will be eligible for being assessed on

presumptive taxation, in which case the tax payable will be calculated as
per paragraph 1 of the 1st schedule.

▪ In the very unlikely case, she becomes eligible for presumptive taxation,
there will be a lower tax liability, since even at the highest turnover for
presumptive taxation, tax wouldn’t exceed TZS.3,500,000 i.e. 3.5% of
TZS.100,000,000. This is clearly lower than the TZS.12,756,000
calculated above.

(c) (i) Feature:

• Purpose: investment activities are meant for either capital appreciation
and rental purpose, where business aims at making profit.

• Regularity or frequent transactions: investment normally takes a long-

term view of activities, unlike business expects benefiting from regular or
many frequent transactions.
• Investment activities are subsidiary one while business activities are
normally the major occupations.

• Length of ownership period: investment activities are mostly for a

longer period of ownership period.

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 • Substance of the income, not the form of it. For instance, interest received
from the business accounts is business income not investment income.
Also, income from short term investments using business funds are
business income not investment income as income from letting extra
business space.

(ii) Capital gain or loss

Computation of Capital gain or loss for Awena Property Developers Ltd

Year Of Income: 2022
Residential Status: Resident
Sources of Income: Investment

TZS. TZS.
Proceeds from sale of property 80,000,000
Less: Expenses to sale
Repairs (780,000)
Newspaper advertisement (242,000)
Agent’s commission (120,000)
Valuation fees (1,480,000)
Legal fees (428,000)
76,950,000
Less: Cost of the building
Property tax NIL
Purchase price 40,000,000
Interest on loan (40,000,000 x 12%) 4,800,000
Audit and legal fees 1,284,000
Valuation fees 1,200,000
Repairs 960,000
48,244,000
Capital gain 28,706,000

ANSWER 3

(a) (i) Limitations of external borrowing:

1. It could increase the risk of default.
2. Being in another country’s pocket, it may ruin credit ratings.
3. Expose the country to exchange rate risk.
(ii) Normally, the government which operates under closed economy struggle to raise
revenue through external borrowing because of the damaged relationship with most
of the giant financial institutions and countries.

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(b) What differentiate tax from non-tax source?
Factors distinguishing a tax from other sources of government revenue. The unique
factors which distinguish a tax from the other sources of government revenue are as
follows:
1. Taxes are mandatory charges; they are compulsory payment made to the
government. People on whom a tax is imposed must pay the tax. Taxes are not
voluntary contributions, donations or gifts to the state. Furthermore, refusal to pay
the tax is a punishable offence.

2. Only government or other taxing body has power to levy taxes, therefore other
non-government bodies like sports clubs, churches, political parties cannot charge
taxes.

3. Depending on tax laws all person regardless of their citizenship pay taxes though
non-citizens now get refunds of VAT paid in Tanzania for goods that will be spent
outside of Tanzania. On the other hand, the non-government revenue is received
from either individuals or corporates (depending on the type of revenue).
4. A payment of tax, does not involve a “quid pro quo” status i.e., taxpayers cannot
expect equal returns for the tax paid. On the other hand, generally the non-tax
government revenue like user fees has the characteristic of ‘quid-pro-quo’.
5. Though individuals and legal persons pay taxes to government, the government
does not have an obligation to provide an individual account of how tax is
utilized; in most cases; however, governments account to parliaments of behalf of
taxpayers.

6. Taxes are usually paid and collected in monetary terms either coins or paper
money.

7. Every tax involves some sacrifice on part of the tax payee

(c) Advantages and limitations of per capital

Advantages of National Income per Capita:

Standard of Living Comparison: National income per capita allows for comparisons of
the standard of living between different countries. By examining the average income
per person, analysts can assess and compare the economic well-being of individuals in
various nations. This helps policymakers and researchers understand the relative
prosperity of different countries and identify trends over time.

Economic Growth Assessment: Changes in national income per capita over time can
be indicative of a country's economic growth or decline. If national income per capita
is increasing, it suggests that the economy is growing, and there may be improvements
in living standards. Conversely, a decline may signal economic challenges. This
information is crucial for policymakers to formulate effective economic strategies and
policies.

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 Limitations of National Income per Capita:
Income Inequality Ignored: National income per capita does not account for income
distribution within a country. Two countries with the same per capita income may have
vastly different income distributions. For example, one country might have a more
equitable distribution of income, while another may have significant income
inequality. As a result, relying solely on per capita income may overlook disparities in
wealth and well-being among the population.

Quality of Life Omission: National income per capita focuses solely on monetary
measures and does not consider the non-monetary aspects of well-being, such as
access to education, healthcare, and environmental quality. A country with a high per
capita income may still face challenges related to poor education, inadequate
healthcare, or environmental degradation. Therefore, using national income per capita
alone may provide an incomplete picture of a nation's overall quality of life.

(d) (i) Why 7th edition of taxpayer’s charter?

The seventh edition of the Taxpayer’s Service Charter has been prepared to replace the
seventh edition with a view of taking into account the changes which have taken place
in our society and more specifically in the tax administration where in 2015, Tax
Administration Act, 2015 was passed. With this regard, the created Taxpayer’s Service
Charter stipulates taxpayer’s rights, obligations and service standards expected by
stakeholders from TRA.

Furthermore, the charter complements the implementation of TRA Corporate Plan

whose aim is to increase domestic revenue through enhancement of voluntary tax
compliance.

(ii) Objectives of taxpayer’s service charter

The Charter explains the rights and obligations of Taxpayers as provided in the tax
laws with a view of promoting mutual relationship between TRA and Taxpayers.

The Charter stipulates fundamental service standards that will be implemented to

achieve quality service delivery through adopting tax administration best practices,
which allows the partnership with taxpayers/stakeholders to grow and thereby improve
tax administration.

Through the charter, is expected build a customer service culture that strengthens
relationship between it, taxpayers and other stakeholders for the benefit of all.

(iii) Obligation of TRA

1. To issue correct tax assessment in accordance with tax laws.
2. To collect taxes in accordance to the existing tax laws, regulations and
procedures.
3. To provide high quality services to taxpayers and other stakeholders.
4. To handle all enquiries from taxpayers and other stakeholders so as to enable
them fulfill their obligations.
5. To manage all complaints from taxpayers and stakeholders with a view of
providing solutions and enable the TRA to improve service delivery.

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 6. To recruit competent staff to ensure quality service delivery to taxpayers and
stakeholders.
7. To educate taxpayers and other stakeholders on their rights and obligations.
8. To make available tax forms and provide timely and accurate information in a
simple language.
9. To facilitate effective communication taxpayers and other stakeholders.
10. To cooperate with taxpayers and other stakeholders in a manner that shows
respect, dignity and customer focused attitude.

ANSWER 4

(a)

Details Class I Class II Class III Class IV Class V

TZS’000’ TZS’000’ TZS’000’ TZS’000’ TZS’000’
2 Computers 1,800
1 Computer NA
30 seater bus 45,000
50 seater bus 80,000
Bulldozer 20,000
Dustan pick up 5,000
Saloon car 18,000
Furniture 7,500
Grain-S warehouse NA
Milling building NA
10 tones lory 24,000
Van 5,000
Komatsu caterpillar 40,000
Harrows 6,000
Planter
Truck - - - - 180,000
Milling machine - - - - 10,000
Grain warehouse 5,000
Grain yard 12,000
Shares - - - - -

(b) From the definition of income tax, it can be observed that a person is liable to pay
income tax only if during the year of income that person:

(i) has total income or,

(ii) has Domestic Permanent Establishment that has repatriated income, or
(iii) received final withholding payments.
(v) is a representative assessing from or through whom a non-resident person is in
receipt of any income whether a direct or indirect.

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(c) In case the year of income changes, the income tax act states that the year of income
can be up to 12 months but cannot exceed 18 months.

(i) A change from January–December to April–March.

• A 3 months year of income (January, February and March) and a 12 months
year of income OR
• A 15 months year of income (January–Dec–March).
(ii) A change from January–December to August–July.
• A 12 months year of income (January–December) and a 7 months year of
income (January–July) BUT

• Cannot be a 19 months year of income.

ANSWER 5

(a) Features of customs union

1. A common set of import duty rates applied on goods from other countries.
2. Duty free and quota-free movement of tradable goods among its constituent
customs territories.
3. Common safety measures for regulating the importation of goods from third
parties
4. A common set of customs rules and procedures including documentation.
5. A common coding and description of tradable goods.
6. A common valuation method for tradable goods for tax purposes.
7. A structure for collective administration of the customs union.
8. A common trade policy that guides the trading relationships with third countries
outside the union.

(b) Inward processing

Inward Processing is a Customs procedure under which certain goods can be brought
into a Partner State conditionally exempted for duty on the basis that the goods are for
processing or repair and subsequent exportation. Under this regime, goods may be
imported by a foreign consignor for processing under contract.

The inward processing procedure exists in two variants:

1. The “suspension” system which covers non-Community goods, destined for
re-export outside the Community’s customs territory as compensating products,
without the goods being subject to import duties.

2. The “drawback system” or repayment system where import duty and VAT are
paid when the goods arrive in the EAC and are declared to Inward processing.
Traders reclaim duty if they export the goods.

Outward processing

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 Outward processing is a customs procedure that permits partial or total duty relief for
goods temporarily exported from the EAC for processing or repair and the
compensating products be re-imported and released for home consumption with total
or partial relief of duties. Outward processing enables businesses to take advantage of
cheaper costs outside the Community while encouraging the use of Community
produced raw materials to manufacture the finished products. The goods may also be
temporarily exported to undergo processes not available within the Community.

(c) Tax payable on importation

Details Working
Cost 12,000
Freight 1,000
Insurance 1,500
CIF 14,500
Exchange rate 2,300
CIF(TZS.) 33,350,000
Import duty (25%* 33,350,000) 8,337,500
41,687,500
Excise duty 12,506,250
54,193,750
VAT 9,754,875

(d) The following goods shall be exempted from liability to pay duty:
• Goods remaining on board and exported in the same aircraft/vessel that imported
them;
• Goods listed in the 5th Schedule of EACCMA;
• Goods entered under bond for exportation, re-exportation, transshipment, transit or
for use as stores for aircraft or vessel;
• Re-imported goods on which import duty has been paid for prior to their
exportation and on which duty drawback or refund was not allowed;
• Re-imported goods provided their form or character has not been changed;
• Goods imported for temporary use or purpose.

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ANSWER 6

(a) Differences are:

• Tax Evasion:
Tax evasion refers to the illegal act of deliberately underreporting income inflating
expenses, hiding assets, or engaging in other deceptive practices to reduce tax
liability. The primary characteristic of tax evasion is that it involves intentionally
providing false information or concealing information from tax authorities with the
explicit purpose of paying fewer taxes than legally owed. Tax evasion is considered
a criminal offense in most jurisdictions and can lead to fines, penalties, and even
imprisonment.

• Tax Avoidance:
Tax avoidance is the legal practice of using various methods and strategies to
minimize tax liability while still complying with the letter of the law. Unlike tax
evasion, tax avoidance involves utilizing loopholes, exemptions, deductions, and
legitimate tax planning techniques to legally reduce the amount of taxes owed. Tax
avoidance aims to optimize an individual’s or entity’s tax situation within the
framework of existing tax laws.

(b) Here are some measures that can be taken to minimize tax evasion:
(i) Transparent Tax Laws and Regulations: Clearly defined and easily
understandable tax laws and regulations help reduce confusion and unintentional
non-compliance. When people understand their tax obligations and the
consequences of evasion, they are more likely to comply.
(ii) Effective Enforcement and Penalties: Strict penalties for tax evasion can act as
a deterrent. The threat of audits, fines, and legal consequences can discourage
individuals and businesses from engaging in evasion.

(iii) Regular Audits and Investigations: Conducting regular audits and

investigations by tax authorities can uncover instances of tax evasion. Random
audits and targeted investigations help identify non-compliance and deter
potential evaders.

(iv) Use of Technology: Leveraging technology, such as data analytics and artificial
intelligence, can help tax authorities identify patterns of potential evasion more
efficiently. Automated tools can flag unusual transactions or inconsistencies in
tax returns.

(v) Whistleblower Programs: Offering incentives to individuals who provide

information about tax evasion can encourage insiders to report illegal activities.
Whistleblower programs can help uncover evasion schemes that might otherwise
go unnoticed.

(vi) International Cooperation: Cross-border tax evasion can be complex, involving

offshore accounts and transactions. International cooperation between tax

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 authorities, through information sharing and treaties, can help track and prevent
such evasion.

(vii) Public Awareness and Education: Raising awareness about the importance of
paying taxes and the consequences of evasion can foster a culture of compliance.
Educating taxpayers about their rights and responsibilities can reduce inadvertent
non-compliance.

(viii) Digital Payment Systems: Promoting digital payment systems reduces the use of
cash and increases transparency in transactions. Electronic records make it harder
to hide income or manipulate financial data.

(ix) Third-Party Reporting: Requiring third parties, such as employers and financial
institutions, to report income and transactions 10 tax authorities helps verify the
accuracy of taxpayers’ claims.

(b) Stamp duty is a tax that government charge on legal documents usually involving the
transfer of real assets and other commercial transactions
The objectives of the stamp duty are:
• To arise government revenues
• To help to prove ownership and legality of transaction conducted in country

(c) The areas where resident person is different from non -resident person in
treatment as per Income Tax Act, Cap.332
1. S.6 – definition of chargeable income

(a) in the case of a resident person, the person’s income …… irrespective of

the source of the income; and

(b) in the case of a non-resident person, the person’s income ….... but only to
the extent that the income has a source in the United Republic.

2. S.77 – Claim of foreign tax credit – a resident person (other than a

partnership) may claim a foreign tax credit for a year of income for any
foreign income tax paid by the person to the extent to which it is paid with
respect to the person’s taxable foreign income for the year of income.

3. 1st schedule, paragraph 1(1) and (4) – individual income tax rates differ
between.
(a) Para 1(1) – resident individuals PAYE tax rates (8% to 30%) with a minimum
threshold of TZS.3,240,000 p.a. (TZS.270,000 per month).
(b) Para 1(4) Non-resident individual flat tax rate – 30% of total income.

4. 1st schedule, paragraph 2(1) – Presumptive taxation.

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 Para 2(1) – Resident individuals can be assessed on presumptive basis (based on
turnover) if income comes exclusively from business with a source of URT.

5. 1st schedule, para 4 – withholding tax rates: various withholding income tax
rates differs between resident v/s non-resident withholder.

6. S.90 – Income tax rates on single installment at time of realization f an interest

in land/buildings situated in the URT differs between resident (10% of gain)
and non-resident (20% of gain).

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