THE PUBLIC ACCOUNTANTS EXAMINATIONS BOARD

A Committee of the Council of ICPAU

CPA (U) EXAMINATIONS

LEVEL ONE

TAXATION - PAPER 6

THURSDAY 7 OCTOBER, 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 out of the five questions in Section B. Each question carries
20 marks.
6. Tax rates are provided on page 7.
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
Jenny & Clyde Construction Company (JCC) is a Ugandan construction company
with its headquarters in Kampala specialising in electrical power line construction.
Below is an extract of JCC’s statement of profit, loss, and other comprehensive
income for the period ended 31 December, 2020:
Notes Shs '000’ Shs '000’
Contract revenue 1,039,240
Contract costs:
Labour costs 1 139,840
Sub-contractor’s costs 2 115,400
Materials 352,800
Equipment 3 191,000
Total contract costs (799,040)
Gross profit 240,200
Other incomes
Interest income 4 16,500
Miscellaneous income 3,400 19,900
Administrative expenses 5 (65,000)
Operational expenses (45,000)
Profit before tax 150,100
Additional Information:
1. Labour costs include:
(a) Shs 18.24 million paid to the National Social Security Fund (NSSF)
includes both employer and employee contributions.
(b) Gross salaries of all staff Shs 121.6 million.
(c) Shs 10.8 million paid to domestic employees of the managing director.
The amount had not been included in the benefits for Pay as you earn
(PAYE) purposes.
2. The cost of sub-contractors includes an advance payment for works yet to
be started of Shs 63 million.
3. Equipment costs include:
(a) Forklifts of Shs 49 million.
(b) 62 pole climbing boots of Shs 215,000 each.
4. Interest income relates to income earned on treasury bills.
5. Administrative Expenses include:
(a) Utility bills of Shs 3.4 million paid for staff quarters.
(b) Subscription to the engineering association Shs 2.4 million.

7 October, 2021 Page 2 of 7

 Taxation – Paper 6

(c) Directors benefits not included in employment income of Shs 5.6

million.
(d) Depreciation of Shs 12.1 million.
6. The company has 34 permanent staff of which 3 network designers are
disabled.
7. During the year, the company acquired the following depreciable assets:
(a) Computer servers Shs 19 million.
(b) 15 ton truck for ferrying electric poles Shs 62 million.
(c) 2 diesel generators for running off-the-grid sites placed at the Sub-
stations in Amuru district. Each generator costs Shs 32 million.
(d) 6 computers for running a new project in Soroti each costing Shs 3.4
million.
8. The tax written down values at the beginning of the year were as follows:
Shs ‘000’
Class I 76,000
Class II 211,000
Class III 181,000
Class IV 45,000
9. The company acquired a new building for its head office in Kampala at Shs
634 million and constructed a new office building in Soroti Shs 213 million.
Both buildings were occupied by the company at the start of the financial
year.
Required:
(a) Determine JCC’s chargeable income and compute the tax liability for the
year ended 31 December 2020.
(16 marks)
(b) According to the provisions of the Income Tax Act Cap. 340, explain the
implications of withholding tax being a final tax.
(4 marks)
(Total 20 marks)
Question 3
Kalyesubula Mariam is a Technical Director for the Locusts Control Initiative (LCI)
a donor funded project located in Kotido district for the past 12 years. LCI has
branches in other parts of the country. Mariam is entitled to the following:
1. Gross monthly salary Shs 11.4 million.
2. Hardship allowance Shs 750,000 per month. Kotido district is considered a
hard-to-reach area.
3. Monthly airtime Shs 145,000.
4. Monthly digital satellite television subscription Shs 285,000.
5. Meals worthy Shs 15,000 per day including weekends and public holidays.
The rest of the staff in other districts are not entitled to this benefit.
7 October, 2021 Page 3 of 7
 Taxation – Paper 6

6. A house valued at a market value Shs 600,000.

Additional information:
1. LCI pays 15% of gross salary per month into a retirement scheme managed
by Sage Insurance Company.
2. In September 2021, Mariam was informed by her employer that due to
funding limitations, her contract will be terminated at the end of the month.
The letter indicated that she would be entitled to Shs 136.8 million as her
terminal benefit.
3. In September 2021, Mariam was appointed by the Ministry of Farmers to
support government officials with planning preventive actions in the event
of locust invasion. The ministry paid her Shs 3.2 million for her services in
the month.
Required:
(a) Determine Mariam’s employment income for the month of September 2021
and compute her tax liability of the month.
(15 marks)
(b) Explain any five employee and employer offences under the Income Tax Act
Cap 340.
(5 marks)
(Total 20 marks)
Question 4
Sukali Enterprise Limited (SEL) is a general merchandise trader located in
Kamwokya a suburb of Kampala district. The following information relates to SEL
for the month of August 2021.
Purchases:
1. Purchased mosquito nets for export at Shs 35 million.
2. Imported animal premix from China at Shs 132 million.
3. Bought leather handbags from a local dealer at Shs 22.8 million.
4. Purchased for resale 15 metric tons of imported cereal at Shs 1.1 million per
metric ton.
5. Purchased 100 dozens of exercise books from a local manufacturer at Shs
5,000 per dozen.
6. Paid the following Administrative Expenses:
(a) Rent Shs 15 million.
(b) Utilities of Shs 1.4 million inclusive of Shs 420,000 for phone bills.
(c) Paid staff salaries of Shs 11.2 million.

7 October, 2021 Page 4 of 7

 Taxation – Paper 6

Sales:
1. Exported cereals to South Sudan worth Shs 24.7 million. As part of this
export, SEL provided transport to Juba in South Sudan and charged the
buyer Shs 2.8 million for the service.
2. 5 leather handbags valued Shs 750,000 were given to the wife of the
Managing Director as her wedding anniversary gift.
3. Sold handbags to Musota traders of Shs 18.6 million.
4. Sold processed grain for Shs 33 million which remained unpaid by the end
of the month.
5. On the last day of the month, SEL received an order to supply body lotion
of Shs 28 million but deliveries were made two weeks after.
Additional Information:
1. During the month, fire gutted one of SEL’s stores and goods on which input
tax had been paid valued at Shs 45 million were destroyed beyond recovery.
2. All sales are VAT inclusive and all purchases are VAT exclusive where
applicable.
Required:
(a) Compute SEL’s Value Added Tax (VAT) payable/claimable for the month of
August 2021.
(14 marks)
(b) Explain the requirements for transactions to qualify for export rating
according to provisions of the VAT Act Cap 349.
(6 marks)
(Total 20 marks)
Question 5
(a) In June 2021, Mike imported the following items:
(i) Subaru Forester (car) model 2008 from Nagoya, Japan through an
auction and incurred the following costs:
Item USD1
Purchase price 1,800
Pre-shipment inspection fee 800
Freight fees from Nagoya to Yokohama port 420
Bought car accessories 620
The shipping company charged mike USD 850 and USD 132 for freight
and insurance respectively. Uganda Revenue Authority’s pre-
determined customs value of a similar car is USD 4,100.
(ii) A soap making machine from the People’s Republic of China at USD
16,757 and received a trade discounts of 10% on the value of the

1
USD is United States dollar
7 October, 2021 Page 5 of 7
 Taxation – Paper 6

machine. Mike also paid the manufacturer USD 3,140 as cost of

training on how to operate the equipment and USD 1,680 for
transportation of the equipment inclusive of insurance to the port of
Mombasa.
The applicable rates of tax are provided as follows:
Item %
Import duty 25
Value added tax 18
Withholding tax 6
Environmental levy 10
Infrastructure levy 1.5
The exchange rate ruling at the time of the importation was USD 1:
Shs 3,700.
Required:
(a) Determine customs value and import tax payable for each of
the two items imported by mike.
(15 marks)
(b) In accordance with the Income Tax Act Cap 340, explain the
meaning of the “cost base” of an asset.
(5 marks)
(Total 20 marks)
Question 6
(a) Describe the different forms of growth of business ventures.
(6 marks)
(b) Explain the strategic reasons of business combinations.
(6 marks)
(c) Describe the characteristics of a good personnel policy.
(8 marks)
(Total 20 marks)

7 October, 2021 Page 6 of 7

 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 With records Without records
Not exceeding Shs 10 million NIL NIL
Exceeding Shs 10 million but does not 0.4% of annual turnover in excess of Shs 80,000
exceed Shs 30 million per annum. Shs 10 million.
Exceeding Shs 30 million but does not Shs 80,000 plus 0.5% of annual Shs 200,000
exceed Shs 50 million per annum. turnover in excess of Shs 30 million.
Exceeding Shs 50 million but does not Shs 180,000 plus 0.6% of annual Shs 400,000
exceed Shs 80 million per annum. turnover in excess of Shs 50 million.
Exceeding Shs 50 million but does not Shs 360,000 plus 0.7% of annual Shs 900,000
exceed Shs 150 million per annum. turnover in excess of Shs 80 million.

7 October, 2021 Page 7 of 7