Question One
(a) ‘Where there is no tax there is no nation. ’Discuss the statement in
support, giving live examples in Uganda. Mention of the various taxes levied
in Uganda is expected of you.
(15 Marks)
Tax is defined as a monetary charge imposed by the government on persons,
entities, transactions or property to yield public revenue.
Without taxes, governments would be unable to meet the demands of their
societies. Taxes are crucial because governments collect this money and use it
to finance social projects.
Some of these projects include:
Health
Without taxes, government contributions to the health sector would be
impossible. Taxes go to funding health services such as social healthcare,
medical research, social security, etc.
Education
Education could be one of the most deserving recipients of tax money.
Governments put a lot of importance in development of human capital and
education is central in this development. Money from taxes is channeled to
funding, furnishing, and maintaining the public education system.
Governance
Governance is a crucial component in the smooth running of country affairs.
Poor governance would have far reaching ramifications on the entire country
with a heavy toll on its economic growth.
Apart from social projects, governments also use money collected from taxes to
fund sectors that are crucial for the wellbeing of their citizens such as security,
scientific research, environmental protection, etc.
Some of the money is also channeled to fund projects such as pensions,
unemployment benefits, childcare, etc. Without taxes it would be impossible for
governments to raise money to fund these types of projects.
Furthermore, taxes can affect the state of economic growth of a country. Taxes
generally contribute to the gross domestic product (GDP) of a country. Because
of this contribution, taxes help spur economic growth which in turn has a
ripple effect on the country’s economy; raising the standard of living, increasing
job creation, etc.
Governments also use taxes as a deterrent for undesirable activities such as
the consumption of liquor, tobacco smoking, etc. To achieve this, governments
impose high excise levies on these products and as a result, raise the cost of
these products to discourage people from buying or selling them.
The following are some the Taxes levied in Uganda

Income tax

VAT (also referred to as Goods and Services Tax in other jurisdictions)

Excise Duty

Stamp Duty

Customs Duty
(b) What Non Tax Revenue (NTRs) sources are available to the Government
of Uganda?
( 10 Marks)
NTRs refer to duties, fees, and levies that are charged by Government for the
provision of specific services and penalties for specified offences. Non-Tax
Revenues (NTR) are imposed by specific Acts of Parliament and administered by
ministries and other government departments.
Examples

Police services.

Home guards.

Electricity.

Administrative services.

Municipal services.

Jobs through state public services boards.

Sale of stationery.

Gazettes.

Others like; the fees paid to URA when processing driving permits and
when paying traffic offences.
Question Two
(a) A good tax system strikes a balance between cost of collection,
revenue collected (broad based), compliance and equity, etc.
(i) Explain how features of Value added tax, income tax and import
duties fit in those principles of a good tax. (7 Marks)
A good tax system strikes a balance between costs of collection, revenue
collected (broad based), compliance and equity, etc.
An income tax is a tax imposed on individuals or entities (taxpayers) that
varies with respective income or profits (taxable income). Income tax generally
is computed as the product of a tax rate times taxable income. Taxation rates
may vary by type or characteristics of the taxpayer which conforms to the
principle of a good tax – since it comprises a component of equity and fairness
where similarly situated taxpayers should be taxed similarly.
Import duties tax fit in the features of a good tax because it conforms to
Certainty and simplicity principle of a good tax since the tax rules are clear and
simple to understand, so that taxpayers know where they stand. A simple tax
system makes it easier for individuals and businesses to understand their
obligations and entitlements.
VAT tax also fits into the features of a good tax because it conforms to the
principle of Certainty were every tax payer is certain about how much tax does
he or she own, when payment of tax is due and how it should be paid.
(ii)
A large portion of activities especially the informal sector in
Uganda still remain un taxed. What are the challenges of taxing the
informal sector in Uganda? (5 marks)
The major challenges of taxing the informal sector include the lack of political
will to fund and undertake proper census of the operators in the informal
sector which could have discovered many businesses operating without paying
taxes. It also established that the lack of a special database for the informal
sector by the Uganda Revenue Authority is also another challenge of taxing the
informal sector. The study also established that proper structures of tax base
and templates for assessing and collecting taxes from the informal sector has
not been
(b)(i) What is meant by Tax evasion? (2 marks)
Tax evasion refers to any criminal activity or any offence of dishonesty
punishable by civil penalties that is intended to reduce the taxation incidence,
and depends on economic and tax structures, types of income, and social
attitudes.
(ii)
What are the causes of tax evasion in Uganda?(6 Marks)
Some of the causes of tax evasion, among others are:

The very structure of the countries’ tax system.

Anarchic distribution of powers among the different government levels,
especially in federal countries.

Low educational level of the population.

Lack of simplicity and accuracy of the tax legislation.

Inflation.

Tax pressure – high rates.

A significant informal economy
(iii)
What efforts has Uganda Revenue Authority taken to reduce tax
evasion in Uganda?
The URA has been implementing enabling measures intended to improve tax
morale and increase future revenues. However, there are immediate fiscal
pressures.
The URA has taken an approach to systematically check all refund payments
that are claimed in respect of such credits (and cap the total amount paid each
month), while allowing excess credits to offset subsequent tax liabilities without
systematic checking..
URA is supporting their reform objective to increase their analytical capability
and improve performance monitoring.
The URA is currently reviewing its analytical capability.
The URA is developing its in-year monitoring processes and metrics for the tax
gap.
Question three
(a) Explain the rationale behind capital deductions/ allowances. (2 marks)
Capital allowance is an amount of money spent on business assets that can be
subtracted from what a business owes in tax.
(b) Briefly explain the types of capital allowances/ deductions acceptable
in Uganda.
(4 marks)
Capital allowances are thus treated as operating expenses and deducted in
arriving at chargeable income or profits chargeable to tax. Deductions allowed
on capital expenditure include the following categories:
1. Depreciable assets — varies as per 6th Schedule of the Act
2. Industrial building — 5% straight line depreciation allowance
3. Start up costs — 25% per year for four years
4. Costs of intangible assets — actual cost
5. Farm works deductions — 20% for five years
6. Deductions on mineral exploration expenditure
Question Four
Required:
(a) (i) Determine the rental tax payable by Ms Akol Freda for the year ended
June 30, 2015.
( 10 Marks)
Amount per
No of Houses
month
Bukoto
10
UGX 1,000,000
Bakuli
6
Gross Rental Income
For 10months
UGX
UGX
10,000,000
100,000,000
UGX
UGX 750,000
Kasubi
20
Total
4,500,000
UGX
UGX 250,000
5,000,000
UGX 50,000,000
UGX
UGX
19,500,000
195,000,000
Less provision for
Expenditure
UGX 45,000,000
(UGX
20%
Chargeable Rental
39,000,000)
UGX
Income
156,000,000
Less a tax free
threshold
(UGX 2,820,000)
Net Chargeable rent
UGX
Income
153,180,000
(UGX
Less the 20% for loss
20%
30,636,000)
UGX
Rental Tax Due
122,544,000
(ii)
Advise Ms Akol Freda on the due dates for filing returns and
payment of rental tax.
(2 Marks)
Ms Akol is advised to submit (furnish) the Provisional and annual return to
Uganda Revenue Authority, through the nearest local URA Office, within three
months for the provisional return i.e. not later than 31st September; and six
months for the annual return after the end of the relevant year of income, i.e.
not later than 31st December and where a provisional return has been filed,
pay quarterly the rental income tax by the appropriate due date.
(iii)
What amount tax would be payable if the rental houses were
registered and managed as a company? (5 Marks)
UGX 122,544,000
(b) Taking the super Market business as a small taxpayer’s business,
calculate the amount of tax payable during the year. (6 Marks)
The threshold for presumptive tax payers increased from UGX 50M to 150M .
Also note that the Presumptive Tax rates reduced from 3% to 1.5%. Meaning
that the tax payable is calculated and determined basing on the lower of one
point five percent or the prescribed tax amount as illustrated in the table
below.
Where the gross turnover of the taxpayer exceeds Shs. 100 million but does not
exceed Shs. 125 million per annum. Shs. 1,687,500 or 1.5% of the gross
turnover, whichever is lower. This therefore means that Ms Akol will have to
pay a tax of shs 1,687,500 because her Gross turnover exceeds 100 million
but does not exceed 125 million per annum
(c) Determine the total amount of tax payable to URA (i.e. a ( i) and b) in
figures and in words.(2 marks)
a (i) UGX 122,544,000, One Hundred Twenty Two Million Five Hundred Forty
Four Thousand shillings
b) Shs. 1,687,500 ; One Million Six Hundred Eighty Seven Thousand Five
Hundred shillings
Question Five
Write notes on each of the following:
Withholding tax on certain payments made (10 Marks)
This is a system of collecting tax by a withholding agent on a specified
range of payments. These include:
(i)
Employment income
(ii)
International payments
(iii)
Payments to non-resident Contractors or professionals
(iv)
Payments on dividends
(v)
Payment for Goods and services by Government institutions and
designated withholding agents
(vi)
Payments on professional fees
(vii)
Payment on imports
Taxation of a Resident person
(5 Marks)
Resident individuals enjoy a tax free annual income threshold of UGX.
2,820,000 per annum. The balance is taxed at 10%, 20% or 30% depending on
the income bracket. Individuals who earn above UGX 120,000,000 pa pay an
additional 10% on the income above 120m.
Resident persons are taxed on worldwide income, resident persons with a
turnover of less than UGX 50m are taxable at Presumptive rates
The rental income of a resident individual for the year of income is charged to
tax at the rate of 20% of the chargeable income in excess of the tax free
allowance or threshold of Shs 2,820,000 per annum. However, in determining
the tax due, a fixed deduction of 20% per annum is allowed on the gross
annual rental income of resident individuals.
GROSS TURNOVER PER ANNUM
TAX (FINAL)
(UGX)
Not exceeding 5 million
NIL
Exceeding 5 million but not exceeding
100,000
20 million
Exceeding 20 million but not
The lower of 250,000 or 1.5% of gross
exceeding 30 million
turnover.
Exceeding 30 million but not
The lower of 350,000 or 1.5% of gross
exceeding 40 million
turnover.
Exceeding 40 million but not
The lower of 450,000 or 1.5% of gross
exceeding 50 million
turnover
Direct and Indirect taxes (5 Marks)
Direct Taxes are imposed on income arising from business, employment,
property and the burden of the tax is borne by the individual or business
entity. Examples of direct taxes include Corporation tax, Individual Income
Tax, e.g. Pay As You Earn, capital gains tax and rental tax.
Indirect Taxes are taxes levied on consumption of goods and services collected
by an Agent (Taxpayer). Notable indirect taxes include Value Added Taxes
(VAT), excise duty, import duty.
Listed institutions whose income is exempted from taxation (5 Marks)
Exemptions for specified categories of people and entities under the 5th
Schedule EACCMA
Goods imported by or on behalf of –

The President.

Donor agencies with bilateral or multilateral agreements with the partner
states.

International and regional organisations with diplomatic accreditation.

Disabled, blind and physically handicapped persons.

Rally drivers (one motor vehicle and parts).
Question Six
Ms Stella Kinene imports motor tyres from Hong Kong. Recently she
purchased tyres at purchase price of $35,000 (shs 105,000,000)
Import duty on tyres is 25%;
25
𝑥105,000,000
100
= 26250000
Excise duty – 50%
50
𝑥105,000,000
100
= 52500000
Value Added Tax- 18%
18
𝑥105,000,000
100
= 18900000
Withholding Tax – 6%
6
𝑥105,000,000
100
= 6300000
Environmental Levy – 2.5%
2.5
𝑥105,000,000
100
= 2625000
Required:
(a) Determine the Total Tax Payable by the importer. (18 Marks)
Tax payable 106,575,000-25000000
=
81575000/=
Ms Stella contracted BaYusuf Haulers’ to transport the cargo from
Mombasa to Kampala at a cost of Sh. 25,000,000
At the time of importation the exchange rate is $ 1= Sh. 3000.
Question seven
With 4 examples in each case, distinguish between Standard rated supplies,
Zero rated supplies and Exempt supplies (12 Marks)
There are three categories of supplies that can be made by a VAT vendor:
standard-rated, zero-rated and exempt supplies. Output tax must be levied on
all supplies except exempt supplies. The VAT Act gives specific guidelines for
zero-rated and exempt supplies but these fall outside the scope of this article.
Please contact your tax practitioner for more information.
The following simplified formula is used to calculate the amount of VAT that a
registered VAT vendor have to pay to SARS or can claim as a refund from
SARS:
Output VAT levied on standard-rated and zero-rated supplies* – Input VAT
claimed on
qualifying expenses = Net VAT due to/(refundable by) SARS
* A supply is defined as the provision of a product or service by a VAT vendor in
return for payment in cash or otherwise.
Standard-rated supplies
Standard-rated supplies are supplies of goods and services on which output
VAT is levied at a rate of 14%. The input VAT incurred on purchases of goods
and services to generate standard-rated supplies can be deducted from output
VAT payable to SARS.
Example 1:
a. XYZ Manufacturers manufactured inventories at a cost of R7 000 (VAT
included).
b. The inventories were sold for R10 000 (VAT included).
c. All inventory sales qualify as standard-rated supplies.
Net VAT due to/(refundable by) SARS will be calculated as follows:
Output VAT levied on standard-rated supplies (R10 000 x 14/114)
R1 228
Less: Input VAT on purchases to make standard-rated supplies
(R
(R7 000 x 14/114)
860)
Net VAT due to/(refundable by) SARS
R 368
Zero-rated supplies
Zero-rated supplies are supplies of goods and services on which output VAT is
levied at a rate of 0%. The input VAT incurred on the purchase of goods and
services to generate zero-rated supplies can be claimed against output VAT
payable to SARS.
Example 2:
a. XYZ Manufacturers manufactured inventories at a cost of R7 000 (VAT
included).
b. The inventories were sold for R10 000 (VAT included).
c. All inventory sales qualify as zero-rated supplies.
Net VAT due to/(refundable by) SARS will be calculated as follows:
Output VAT levied on zero-rated supplies (R10 000 x 0/114)
R
Less: Input VAT on purchases to make zero-rated supplies (R7 000 x
(R
14/114)
860)
Net VAT due to/(refundable by) SARS
Exempt supplies
(R
860)
nil
Exempt supplies are not subject to VAT. No output VAT, either at 14% or at
0%, is levied on exempt supplies. Input VAT incurred on expenses to make
exempt supplies cannot be claimed against output VAT due to SARS.
Example 3:
a. XYZ Manufacturers manufactured inventories at a cost of R7 000 (VAT
included).
b. The inventories were sold for R10 000.
c. All inventory sales are exempt supplies for VAT purposes.
Net VAT due to/(refundable by) SARS will be calculated as follows:
Output VAT levied on exempt supplies
R nil
Less: Input VAT on expenses incurred to make exempt supplies
(R nil)
Net VAT due to/(refundable by) SARS
R nil
Combination of standard-rated, zero-rated and exempt supplies
Where a VAT vendor makes standard-rated supplies and/or zero-rated supplies
and/or exempt supplies, input VAT must be apportioned in the same ratio as
the three different types of supplies stand to each other.
Example 4:
a. ABC Distributors made the following supplies for VAT purposes (VAT
included where applicable):
Standard-rated supplies
R 60 000
60%
Zero-rated supplies
R 10 000
10%
Exempt supplies
R 30 000
30%
Total supplies
R100 000
100%
b. Expenses incurred in the making of total supplies amounted to R85 000
(VAT included).
Net VAT due to/(refundable by) SARS will be calculated as follows:
Prorata Output VAT levied on standard-rated and zero-rated
supplies[(60 000 x 14/114) + (R10 000 x 0/114)]
Output VAT on exempt supplies
R7 368
R
nil
Less: Apportioned input VAT on expenses to make standard-rated
andzero-rated supplies [(R85 000 x 60% x 14/114) + (R85 000 x
10% x 14/114)]
(R7 307)
R
nil
Less: Apportioned Input VAT on exempt supplies
Net VAT due to/(refundable by) SARS
R
61
Accounting software can be set up so that VAT is automatically recorded
correctly for standard transactions. However, a computer programme will not
be able to classify unique transactions for VAT purposes. Therefore it is still
important that accounting staff is trained to handle VAT correctly, especially
where grey areas exist
Biashara Ltd is a VAT registered trader in Mubende Town.
In June 2015 he purchased appliances worth Sh. 7,500,000 exclusive of
VAT. The sold all the items at Sh. 12,000,000 also exclusive of VAT
Required:
(i)
Determine the Value Added(2 Marks)
(ii)
Determine the VAT payable or claimable
(6 Marks)
Vat payable is 2,160,000/=
TAX
PURCHASE
PAYER
OR INPUT
SALES
INPUT
OUTPUT
VAT TO
TAX
TAX
URA(shs)
Biashara
Ltd
7,500,000
0
7,500,000
12,000,000
1,350,000
0 1,350,000
Biashara
Ltd
1,350,000 2,160,000
Total
810,000
2,160,000
(a) Jico traders served Biashara Ltd with a tax invoice on 10 new
refrigerators of Sh 10,500,000 VAT inclusive .
Biashara Ltd will sell each refrigerator at Sh. 1,150,000
inclusive of VAT.
TAX
PURCHASE
PAYER
OR INPUT
Biashara
10,500,000
SALES
INPUT TAX
OUTPUT
VAT TO
TAX
URA(shs)
1,601,694.92
Ltd
Biashara
Ltd
Total
10,500,000
11,500,000
1,601,694.92 1,754,237.29
1,601,694.92
152,542.37
1,754,237.29
What tax will be payable to URA on this consignment and at
what date?(5 Marks)
Shs.1,754,237.29 paid at the time of import
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