 

σ2 = Xi
P
   i
2
 2 + X 2
m    2ie 
 i


12 
2
1 
 2 =  x 4.15 x 0.0484 +  x 0.306513
P
3  3 

 2 = 0.09262 + 0.03406
P

 2 = 0.12668
P

Portfolio of equal weights:

Return, (%) 25.33%
Beta 1.3833
Total Risk 0.12668
Standard deviation 35.59%

(ii) What would happen to the total risk and return if the investor borrows 50% at the
risk-fee rate and invests in the same portfolio of part (i) above?
When borrowing is 50% assumed at risk free rate of return of 5.5%
Portfolio Return % = 1.5 x 25.33 – 0.5 x 5.5 = 35.245%
Portfolio Risk, Standard Deviation, % = 1.5 x 35.59 = 53.385%

____________▲ _______________

EXAMINATION : FINAL LEVEL

SUBJECT : ADVANCED TAXATION

CODE : C4

EXAMINATION DATE : FRIDAY, 4TH NOVEMBER, 2022

TIME ALLOWED : THREE HOURS (2:00 P.M. – 5:00 P.M.)

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GENERAL INSTRUCTIONS

Questions & Answers November, 2022 Page 79 of 101

2. There are TWO Sections in this paper. Sections A and B which comprise a total of
SIX questions.

2. Answer question ONE in Section A

3. Answer ANY FOUR questions in Section B.

4. In total answer FIVE questions.

5. Marks are shown at the end of each question.

6. Show clearly all your workings in the respective answers where applicable.

7. Calculate your answers to the nearest one decimal point where necessary.

8. Applicable tax rates are provided in Appendices on page 10.

9. This question paper comprises 10 printed pages.

_________________

Questions & Answers November, 2022 Page 80 of 101

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SECTION A
Compulsory Question
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QUESTION 1
(a) Petroleum operation involves operations and activities in connection with
exploration, appraisal, development, production and includes all abandonment
activities. This operation includes the upstream, midstream and downstream
activities.

REQUIRED:

Briefly explain the taxation principles under the midstream and downstream
activities. (4 marks)

(b) Insurance is a contract that transfers the risk of financial loss from an individual or
business to an insurance company. Insurance brokers and agents account for Value
Added Tax (VAT) in a normal way as traders. However, taxable supplies provided
by insurers has slight difference from other businesses.

REQUIRED:
Briefly explain how VAT in terms of output and input tax is applied in an insurance
contract. (5 marks)

(c) MARFAT Investment Tanzania (MIT) Limited located at Songwe, is registered for
VAT as a manufacturer cum importer and is engaged in manufacturing and supply
of consumer products. The following information has been extracted from MIT’s
records for the month of September 2022:

Details TZS. “000”

Supplies
Taxable goods to registered customers 27,500,000
Taxable goods to un-registered customers 10,500,000
Export of taxable goods to Zambia 15,000,000

Purchases
Taxable goods from registered suppliers 18,900,000
Taxable goods from un-registered suppliers 10,000,000
Packing material from un-registered suppliers 4,450,000

Additional information:
Questions & Answers November, 2022 Page 81 of 101
 1. Supplies of taxable goods to registered customers include:
• Goods worth TZS.2,250,000 (net of special discount of TZS.750,000).
These goods were sold to an associated undertaking. The special discount
was not reflected in the invoice.
• Goods worth TZS.1,200,000 supplied to a customer in Iringa. MIT received
full payment against the goods in October 2022.
2. Supplies of taxable goods to unregistered customer include sales of
TZS.1,300,000 to a customer who purchased for further production.
3. Purchases from registered suppliers include:
• Goods worth TZS.1,000,000 purchased from Tesha Enterprises on
5th September 2022. On 20th September 2022, Tesha enterprises informed
MIT that with effect from 1st September 2022, its registration has been
suspended by the Commissioner General.
• Goods worth TZS.850,000 purchased in cash.
• Goods worth TZS.500,000 purchased from AB supplies. MIT did not
declare the sale of these goods in its tax return for the month of September
2022.
4. Taxable goods worth TZS.1,500,000 were used in the business meeting held for
the promotion of MIT’s business.
5. A machine costing TZS.25,000,000 was acquired and commissioned into
operation in September 2022. The machine was used for both standard rated
and zero-rated supplies.
6. Electricity bill of TZS.900,000 for the month of April 2022 was paid in May
2022. However, related input tax of TZS.140,000 has still inadvertently
remained unclaimed.
7. The auditors have proposed to make a provision of 50% against obsolete and
expired stock of TZS.3,500,000. The goods are lying in warehouse since June
2020. Input tax relating to this stock was claimed in June 2020.
8. VAT credit of TZS.4,150,000 has been brought forward from previous tax
period.
All the above figures are exclusive of VAT, except where specified otherwise
stated.

REQUIRED:
In the light of the provisions of the Value Added Tax Act, Cap. 148 and Rules made
thereunder, compute the amount of VAT payable by or refundable to MIT and input
tax to be carried forward if any, for the period of September 2022.
(11 marks)
(Total:20 marks)

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SECTION B
Questions & Answers November, 2022 Page 82 of 101
 There are FIVE questions. Answer ANY FOUR questions
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QUESTION 2

(a) M
itomingi Gold Mine Ltd is a resident medium scale mining company which was
incorporated in the Republic of Tanzania in January 2020. Mr. Matei, a majority
shareholder was informed that the government decided to remove Value Added Tax
(VAT) and withholding taxes in the mining sector in 2019. The majority
shareholder is not sure about what he has heard from a friend and whether his
company is also eligible for these exemptions.

REQUIRED:
Clarify the matter to Matei and advise on whether Mitomingi Gold Mine Ltd is
eligible for such exemptions, if any.
(2 marks)

(b) Mitomingi Gold Mine has prepared its draft Trial Balance as at 31st December
2021, which is shown below:

Mitomingi Gold Mine Limited

TRIAL BALANCE AS AT 31ST DECEMBER 2021
DR CR
TZS. Note
Fixtures and fittings (Note i) 6,000,000
License fee paid to the Mining Commission 21,000,000
Winch (Note ii) 48,000,000
Freehold building (cost TZS.15,000,000) (Note 13,000,000
iii)
Crushers (cost TZS.152,500,000) (Note iv) 122,000,000
Trade receivables 72,500,000
Trade payables 45,000,000
Bank balance 111,200,000
Gold sales 581,000,000
Cost of sales (Note v) 310,000,000
Administrative expenses (Note vi) 59,000,000
Depreciation (Note vii) 5,000,000
Auditors’ remuneration 11,000,000
Hire of plant and machinery 2,400,000
Loan interest 7,500,000
Dividends paid during the year to preference 162,000,000
shareholders
Corporate Social Responsibility – mandatory 14,000,000
(Note viii)
9% Bank loan 75,200,000

Questions & Answers November, 2022 Page 83 of 101

 Share capital – preference shares 97,400,000
Share capital- ordinary shares 150,000,000
Proceeds from realization of data from a new 16,000,000
foreign mining investor
964,600,000 964,600,000

Additional information:
Note
(i) Fixtures and fittings were purchased in 2021.
(ii) The winch was imported late in 2021 from a South African Company. The
winch was only in use for one month, in the year of income 2021.
(iii) The building was constructed in 2020 to be used as a warehouse for gold
mining chemicals. It is the company policy to depreciate the building at
10% using straight-line method.
(iv) The crushers were purchased from SIDO in 2020. It is the company’s
policy to depreciate them over 5 years.
(v) Included in the cost of sales is TZS. 35,100,000 incurred for smelting and
refinement.
(vi) 15% of administration expenses is in respect of rehabilitation expenses.
(vii) This is the amount of depreciation for noncurrent assets employed wholly
and exclusively to generate business profit as per accounting policy.
(viii) The amount was paid to fund manufacturing of school desks which were
donated to a government owned Kinyanya Primary School.

REQUIRED:

Compute Mitomingi’s taxable income for the year ended 31st December 2021.
(18 marks)
NOTE: Use ‘Nil’ remark for the items that do not enter in the computation.
(Total: 20 marks)

QUESTION 3

(a) The Income Tax Act, Cap. 332 provides rules for taxation of Controlled Foreign
Corporations and Trusts.

REQUIRED:
Explain why it is deemed that any unallocated income of a Controlled Foreign
Corporation of Trust is distributed. (2 marks)

(b) Sometimes, the member of Controlled Foreign Corporation (CFC) may receive
actual dividends which are more than his share of CFC’s attributed income.

REQUIRED:
(i) Explain the likely taxation issue that may arise in this situation. (2 marks)

Questions & Answers November, 2022 Page 84 of 101

 (ii) Explain the way that can be used to fix this problem. (2 marks)

(c) With the help of an example, explain briefly the character of dividend distributed by
a Controlled Foreign Company (CFC) rule in terms of its type and source. (3 marks)

(d) Nguchiro Ltd is a resident company which owns 80% of controlling shares in its
subsidiary registered in Burkina Faso. The subsidiary made a total income of
TZS.100,000,000 and TZS.50,000,000 in the year 2020 and 2021 respectively. In
addition, the subsidiary paid dividend of TZS.8,000,000 and TZS.60,000,000 in
respect of year 2020 and 2021 respectively to Nguchiro Ltd. Assume Nguchiro Ltd
had no any other income apart from dividends from the subsidiary.

REQUIRED:
(i) Briefly explain the rationale for taxing controlled foreign corporations.
(3 marks)
(ii) Determine the tax payable by Nguchiro Ltd for the year of income 2021.
(7 marks)
(iii) What is the outstanding balance of the deemed dividend at the end of year
2021. (1 marks)
(Total: 20 marks)

QUESTION 4

(a) In 2022, Tanzania introduced taxation on digital services.

REQUIRED:
Discuss challenges (legal, operational or administrative) and suggest possible
solutions for smooth implementation of digital services taxation in Tanzania
(10 marks)

(b) Differentiate between domestic and foreign permanent establishments. (3 marks)

(c) Jojo is a domestic permanent establishment. The following information was

extracted from book of accounts of Jojo.

1. At the end of the year of Income 2020, the written down pool of depreciable
assets (WDVs) and other assets showed TZS.33,000,000 and TZS.52,000,000
respectively.

2. Total costs of all depreciable assets of the 2019 were TZS.48,000,000. Total
depreciation allowances claimed on the assets were TZS.20,000,000 and net
costs of the other assets were TZS.25,000,000.

3. There were no balance in the retained earnings account as at 31st December

2020.

Questions & Answers November, 2022 Page 85 of 101

 4. During the year, Jojo borrowed TZS.20,000,000 from a financial institution at
5% interest.

5. The loan is repayable in 2 years equal installments at the end of each year.

6. While there was taxable profit of TZS.12,500,000 for the 2019, during the year
ended 2020 the company reported total income equal to TZS.195,000,000.

7. During the year TZS.50,000,000 was added as capital.

REQUIRED:

(i) Calculate repatriated income of Jojo for the year ended 2020. (5 marks)
(ii) Compute total taxes payable by Jojo for the year ended 2020. (2 marks)
(Total: 20 marks)

QUESTION 5

Mr. Yanga, Mr. Simba and Mr. Azam are partners in one enterprise dealing with
transportation business. Their business income statement for the year 2021, has the
following results:

TZS.
Revenue 500,000,000
Other income 400,000
Total Income 500,400,000
Less: Operating expenses
Depreciation allowance 10,800,000
Fuel and oils 90,000,000
Spare, repairs & maintenance 14,000,000
Licenses 300,000
Interests 5,600,000
Salaries and wages 26,000,000
Stationery 800,000
Tyres and tubes 55,500,000
Miscellaneous expenses 8,000,000
211,000,000
Profit for the year 289,400,000

Additional information is given as follows:

(i) The partners equally spent 10% of fuel and oils used for office vehicles for
private purposes.

(ii) Analysis of salaries and wages:

TZS.

Questions & Answers November, 2022 Page 86 of 101

 • Drivers 7,000,000
• Office attendant 3,000,000
• Mr. Yanga 8,000,000
• Mr. Simba 4,000,000
• Mr. Azam 4,000,000

(iii) Analysis of miscellaneous expenses:

TZS.
• Office cleaning 350,000
• Weighbridge fines 3,500,000
• Income tax paid by partner 3,300,000
• Office electricity 250,000
• Tips to police officers to allow overspeeding 600,000

(iv) The partners share profits/losses equally.

(v) Other income: this represents interest on drawing paid by Mr. Azam.

(vi) Interest analysis: TZS.

Interest on bank overdraft 5,000,000
Interest on loan paid to Yanga 600,000

(vii) Mr. Simba’s personal account showed TZS.2,000,000, TZS.3,000,000 and

TZS.5,000,000 as income received from royalty, dividend and realization of
investment assets respectively. A non-resident corporation paid dividend
while realization is part payment of sale of a building for TZS.20,000,000.
The building that cost TZS.4,000,000 in year 2015 and used for residence
was sold to Mrs. Syovile in 2021.

(viii) Asset acquisition during the year were:

TZS.
Land rover (10 ton) 100,000,000
Tractor 60,000,000
Pickup van (3 tons) 75,000,000
Toyota Land Cruiser-Prado TX 35,000,000

All the assets were used in the partnership business. The depreciation basis as at
31st December 2020 after pooling assets based on the Income Tax Act, Cap.332
showed the following:

Class 1 II
Tax Written down value in TZS. 50,000,000 12,300,000

REQUIRED:
(a) Calculate depreciation allowable in year of income 2021 (3 marks)
(b) Determine the adjusted partnership business income (7 marks)
(c) Determine the partners taxable income (10 marks)

Questions & Answers November, 2022 Page 87 of 101

 (Total: 20 marks)

QUESTION 6

(a) A taxpayer who is not satisfied with the content of the tax assessment notice may
object to the Tanzania Revenue Authority (TRA) Commissioner General within
thirty (30) days after receipt of the assessment notice.
REQUIRED:
Explain the conditions that the aforementioned objection must fulfil. (6 marks)

(b) Usikate Tamaa Company Ltd whose accounting period ends on 31st December each
year estimated that in 2021 it was going to make a total income of TZS.20,000,000.
The company filed the statement of estimated tax payable on 5th May 2021 and
return on income on 30th August 2022 showing tax payable of TZS.9,000,000. All
installments were paid on time and the tax payable on assessment was paid on 30th
August 2022.
REQUIRED:
Calculate:
(i) The tax paid by installments, including any penalty and/or interest that may
be payable. (2 marks)
(ii) The tax paid on assessment, including any relevant penalty and/or interest.
(6 marks)
(c) When the Commissioner General and the objecting taxpayers fail to agree over the
concerning issues the taxpayers can follow the appeal system. But no appeal can be
made when the Commissioner General has amended the assessment as proposed by
the notice of objection or as proposed by objectors (section 16 (2)). In any other
case, the taxpayers may appeal first to the Board, then to the Tribunal and finally to
the Court of Appeal. Generally, these three institutions are knowns as Appellant
Machineries.
REQUIRED:
State any six (6) differences between the “Tax Revenue Appeals Board” and the
“Tax Revenue Appeals Tribunal.” (6 marks)
(Total:20 marks)

Questions & Answers November, 2022 Page 88 of 101

Appendices
(1) Applicable resident individual income tax rates:
Monthly income Tax rate
Where total income does NIL
not exceed TZS.270,000
Where total income exceeds TZS.270,000 8% of the amount in excess of TZS.270,000
but does not exceed TZS.520,000
Where total income exceeds TZS.520,000 TZS.20,000 plus 20% of the amount in excess
but does not exceed TZS.760,000 of TZS.520,000
Where total income exceeds TZS.760,000 TZS.68,000 plus 25% of the amount in excess
but does not exceed TZS.1,000,000 of TZS.760,000
Where total income exceeds TZS.1,000,000 TZS.128,000/ plus 30% of the amount in
excess of TZS.1,000,000
(2) Applicable presumptive income tax rates:
Annual turnover Tax payable when Tax payable when section 80
section 80 is not is complied with
complied with
Where turnovers does not exceed NIL NIL
TZS.4,000,000
Where turnover exceeds TZS.4,000,000 but TZS.100,000 3% of the turnover in excess
does not exceed TZS.7,000,000 of TZS.4,000,000
Where turnover exceeds TZS.7,000,000 but TZS.250,000 TZS.90,000 + 3% of the
does not exceeds TZS.11,000,000 turnover in excess of
TZS.7,000,000
Where turnover exceeds TZS.11,000,000 but
3.5% of turnover
does not exceed TZS.100,000,000
(3) Car benefit quantification table as per the 5th Schedule
QUANTITY OF PAYMENT PER YEAR
ENGINE SIZE OF VEHICLE Vehicle up to 5 years old Vehicle more than 5 years old
Not exceeding 1000cc TZS.250,000 TZS.125,000
Above 1000cc but not exceeding
2000cc TZS.500,000 TZS.250,000
Above 2000cc but not exceeding
3000cc TZS.1,000,000 TZS.500,000
Above 3000cc TZS.1,500,000 TZS.750,000
(4) Statutory rate to be used is 5%
(5) 1 currency point = TZS.15,000
(6) Standard rate of VAT = 18%
(7) Capital gain rates for resident is 10% and for non-resident is 20%.
(8) Unless otherwise specified, Corporate tax rate = 30%

___________▲____________

SUGGESTED SOLUTIONS
Questions & Answers November, 2022 Page 89 of 101